Forever Chemicals in Your Supply Chain

Forever Chemicals

Polyfluoroalkyl substances (PFAS) are common in several products, including insulation, and are typically used to create water-resistant and non-stick consumer products. This includes waterproof cosmetics, raincoats and Teflon pans. But, they resist degradation, and are facing potential bans in both the EU and the U.S. Sourcing these chemicals or products made with PFAS is going to become more difficult and the restrictions on shipping them more complex. (Photo: Getty Images)

Polyfluoroalkyl substances (PFAS) are a large family of chemicals in use since the 1950s, to make a wide variety of stain-resistant, water-resistant and non-stick consumer products. They are in waterproof cosmetics, raincoats, Teflon pans, water-resistant hiking boots and fire-fighting foams to name a few products. They are in the products in your supply chain.

More than 12,000 of these PFAS are in industrial products such as coatings, lubricants, insulation and a host of other processes that are common in manufacturing. Due to their tight chemical bonds, these substances have difficulty breaking down over time, which has resulted in their nickname “forever chemicals.”

They resist degradation in the environment and accumulate in your body. Studies have shown potential adverse human health effects from exposure to some PFAS. If you have seen the movie Dark Waters, you’ll recognize one of the PFAS in this true story about chemical deaths attributed to the production of Teflon.

PFAS are a public health concern, according to the Centers for Disease Control and Prevention. Research indicates that these chemicals can be dangerous. Exposure to PFAS is linked to cancers, weakened immune systems among children, reproductive health, weight gain and a wide range of other health problems.

New regulations

New regulations have been proposed that would ban the use and importation of nearly 10,00 PFAS chemicals in the European Union. Even stricter regulations are being considered in the U.S. These regulations are driving chemical companies to stop producing many of these products.

Sourcing these chemicals or products made with PFAS is going to become more difficult and the restrictions on shipping them more complex. California has some of the most restrictive regulations. Beginning January 1, 2023, the State of California will prohibit the distribution and sale of food packaging containing regulated PFAS. This includes food and beverage containers, take-out food containers, wrappers, utensils, straws, disposable tableware and more. This is only the beginning of more regulations.

In my recent Frictionless Supply Chain podcast with Cally Edgren at Assent software, she described what could happen if these chemicals are widely banned, when suddenly you cannot get lubricants, coatings, or other products needed for manufacturing. They could also be available, but cannot be shipped. Chemical companies may cease production on many PFAS affecting all kinds of products used in industrial settings and households.

Time to raise the red flag

It’s time for supply chain folks to raise the red flag about these coming regulations. Assemble a team of product management, manufacturing and procurement people to discuss what plans are needed to substitute products you use and products you make with alternative chemicals and materials. Don’t wait until it’s too late.

About the Author

Rosemary Coates

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of five supply chain management books including: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters. She is passionate about Reshoring.

What does the CHIPS and Science Act mean for global supply chains?

microchip integrated on motherboard

Semiconductors or “chips” as they are often called, are essential to our lives. They are in our cell phones, our cars, our laptops, our washing machines, our TVs, and airline avionics – it’s hard to imagine a world without them. 

American companies in Silicon Valley invented semiconductors over 70 years ago and up until the 1990s, most of them were produced in the U.S.  But now, only about 12% of all semiconductors are produced domestically. This precipitous decline was exposed during the pandemic with a worldwide shortage of chips and the vulnerability of global supply chains. Although it wasn’t a secret that most of the world’s production (about 80%) of semiconductors was in Taiwan at TSMC, in Korea at Samsung, and in China by other companies, the critical nature of shortages became very apparent during Covid and calls for the reshoring of semiconductors rang loud and clear.

The Biden Administration, during its first 100 days, published a supply chain vulnerabilities report that called out semiconductor production as one of the top four industries that needed to come home, including pharmaceuticals, rare earth mining, EV battery production, and semiconductors. The CHIPS and Science Act of 2022 signed into law by President Joe Biden in August is an important step in the redevelopment of semiconductors in America. The legislation provides $52.7 billion for manufacturing incentives to boost microchip production in the US. Chip manufacturers can begin seeking tax breaks and funds to offset construction and other costs beginning in 2023. New semiconductor factories are now being built in Ohio, New York, Arizona, and other locations in the US. It will take 5-10 years for these new factories to come online.

Semiconductor producers are not the only companies to benefit from incentives and funding. So will the thousands of semiconductor design companies scattered throughout Silicon Valley and around the country, as well as semiconductor process companies including lithographers, packagers, testers, and others. Local communities will also benefit from employment opportunities and economic growth.

The shift to American manufacturing of semiconductors will change sourcing patterns, shorten global supply chains, and shift where the assembly of finished goods is located.  We are likely to see some reshoring of production and assembly of finished products to the U.S.  The shift will be gradual, but steady.

Once again, supply chain professionals will be called upon to be flexible and open to re-thinking how supply chains operate today. Shorter, less risky supply chains will drive faster order fulfillment and response times. Patterns and routes will shift in response to where products are being made, and that will lead to the renegotiation of carrier contracts, selection of new services, and new supply chain partners.

Producing semiconductors and other goods in the U.S. represents a significant shift in supply chain management. Be prepared.

About the Author    

Rosemary Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

                    

More Counterfeits in Supply Chains

The global counterfeiting problem is a multi-headed monster that continues to grow. We heard about counterfeit PPE products that seemed to be everywhere during the pandemic, putting the lives of health care workers in danger. Demand was so high for these products that counterfeiters came out in full force to take advantage of demand volumes and high profits. Meanwhile, counterfeits of industrial and consumer products never slowed. Counterfeiters targeted industrial products, electronics, aerospace, metals, and other industries because shortages and disruptions in deliveries created opportunities.

Awareness of counterfeit parts and products has also increased in industrial procurement departments and all along the supply chain, yet counterfeiters are not deterred. Counterfeiters have changed tactics and their pricing to continue to fool consumers and industrial buyers.

I recently spoke with Keri Kammel, the Director of the Anti-counterfeiting and Product Protection Center at Michigan State University (See this month’s SCMR Frictionless Podcast). The A-CAPP Center’s research indicates that global counterfeiting is increasing at an alarming rate around the world. In the past, the majority of counterfeits came from China, but with many companies moving out of China now, the counterfeiters are moving, too. There is a significant rise in counterfeits in countries including Vietnam, Thailand, Turkey, India, and Pakistan.

Counterfeiters also operate in the U.S. Some of these counterfeiters operate in grey markets where goods are sold as legitimate products with legitimate labels. 

Every time I get on an airplane, I wonder if all the electronic parts and the avionics are legitimate or counterfeit…here’s hoping they are legit. This week, a company operating in New Jersey and Florida was caught selling $1 billion in fake Cisco electronics via 15 Amazon storefronts and 10 eBay stores. Counterfeits are also a huge problem in cosmetics and pharmaceuticals and may be dangerous to your health.

Mis-alignment of Goals

Most procurement professionals are evaluated on annual savings achieved through securing new suppliers and negotiating better prices. These goals may not be in alignment with a company’s desire to buy only legitimate goods. Industrial buyers are caught in the middle – between the incentive to achieve savings and the requirement to buy legitimate parts.

Unfortunately, if your incentive is savings, then you’ll be looking for the lowest price. Even Amazon has developed industrial buying services so that buyers can access a special portal to take advantage of discounts. That’s where counterfeiters step in and trick the buyer into procuring non-legitimate parts at discounted prices.

Maintain control over your supply chain

The only way to control counterfeiting is to maintain tight control over your entire worldwide supply chain and enforce discipline in verifying supply chain partners and products.  This means verifying and monitoring all suppliers and sub-suppliers (tier 1, 2, 3), distributors, subcontractors, and contract manufacturers.  It simply isn’t good enough to show up at a supplier location once a year and hope for the best. Companies sourcing in China and other low-cost countries should go often and review the production of parts. There is no substitute for attention to detail in every supply chain link. If travel is restricted because of the pandemic, companies need to step up their incoming inspection of parts, increasing sample sizes for testing.

Finding and fighting counterfeiters is hard work and a relentless task. Take nothing for granted. Know your supply chains from start to finish. Verify and monitor every step of the way.

About the Author    

Rosemary Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

                    

Shanghai Is Locked Down Again

Shanghai has been on Covid lockdown for the past eight weeks and was expected to start reopening on May 20.  But that day passed and only minor adjustments were made.  Most of the 41 million people in the metro Shanghai region remain confined to their residences in complete or partial lockdown. Unlike lockdowns in America, the Chinese people that are in complete lockdown are not allowed out of their apartments for any reason, including going for a walk, going to the grocery store, or running other errands. Food is delivered by the government to your doorstep. (Can you imagine what government-selected meals look like?)

Shanghai metro area is one of the largest manufacturing centers in China, with heavy concentrations of automotive and electronics suppliers. It is home to the largest container port in the world and a major airport that serves inbound and outbound air cargo.

Now Shanghai’s major ports are only operating at partial capacity, and due to the restricted operations and a lack of drivers available to pull containers in and out of the ports, only a fraction of the normal cargo is moving. Most factories are also closed or only partially operating. Workers are confined to the factory and are not allowed to leave. They work, eat, and sleep on site. Determined not to spread Covid, the Chinese government’s Zero-Covid policy dictates that if you test positive for Covid, you are taken away to a Covid detention center with others who are sick or have tested positive. You are not permitted to recover at home.

As bleak as this picture is, consider the effect on global supply chains that could dwarf previous disruptions at the start of the pandemic. Western buyers are struggling to get finished goods and needed parts from the region. Either the factories aren’t producing or the cargo isn’t moving. Factories in the Shanghai region that supply other factories throughout China are now causing shortages of production parts. Southern ports in Fuzhou, Shenzhen, and Hong Kong are backlogged. Shortages are affecting consumer goods, too. Apple faces a hit of up to $8 billion in the current quarter from supply chain shortages and factory shutdowns in China.

Despite the pandemic, geopolitics, trade sanctions, and penalty tariffs, U.S. imports from China were higher than ever in 2021 due to increases in consumer spending, and are likely to grow throughout 2022. Americans keep buying goods from China and that is adding to the increased demand for cargo shipments.

Sooner or later, the restrictions will be lifted and Shanghai activity will return to normal. But when it does, a major amount of freight that’s been in the queue to leave China will now be headed to the West Coast ports, and the dreaded backlog of ships waiting to be unloaded in Oakland and LA/Long Beach and other ports. These kinds of mismatches in supply and demand for freight movements will continue for many months, even years.

Further complications from the War on Ukraine will soon become evident, too. For example, neon is a gas that is used to manufacture semiconductors and is primarily sourced from Ukraine. The current neon supply is expected to last three months as production in Ukraine has been halted and has no expected restart date. Shortages are expected to extend beyond 2023, so it is likely we will have neon shortages that may delay or shut down semiconductor production – on top of our already constrained semiconductor supply. Both industrial goods and consumer goods will be affected. Just try to buy a new car without semiconductors – global supply chains, from raw materials to finished consumer goods are in jeopardy again.

What’s going on in the Shanghai megalopolis region now could have many times the effect of previous lockdowns. Coupled with the lockdowns in Shanghai and now Beijing, and the war on Ukraine,  global supply chains are again in peril. This situation isn’t likely to get any better, any time soon.

About the Author    

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

What Effect Will Russian Sanctions Have On Your Supply Chain?

We’ve all seen the horrific scenes of the war in Ukraine and the reports of bombing civilian targets. There’s no question that the damage to infrastructure, buildings, industry, and the citizens of Ukraine is devastating and will require many years to recover, if ever. Global supply chains are also being interrupted for anything that originates in Ukraine and Russia, or any business conducted in either country.

Sanctions imposed by the U.S. and European counties have had a profound effect on businesses and will most likely affect your global supply chains.

According to Interos, more than 2100 U.S.-based companies have at least one tier-1 supplier in Russia, and 450 firms (U.S. and Europe) have tier-1 suppliers in Ukraine. But this is not where the real damage to supply chains is occurring. More than 190,000 firms in the U.S. have tier-3 suppliers in Ukraine or Russia. Tier-3 suppliers provide much of the world’s raw materials including aluminum, neon gas, and rare earth elements used in the production of all semiconductors and electronics. If raw materials are not available, this will stop or severely slow the manufacturing of all kinds of products worldwide. We still reeling from the effects of the pandemic on semiconductors, are we are likely to experience even more shortages due to the unavailability of neon gas and rare earth elements.

Ukraine is also a major exporter of grains such as corn, barley, and wheat as well as fertilizer. The war’s full impact on global food supplies is not yet clear, but prices are already increasing and some parts of the world are already experiencing shortages.

Russian Sanctions

The sanctions that the U.S. and Europe have put on Russia have had a significant effect on the Russian economy, and more are likely to come. From a supply-chain perspective, we must carefully consider the following:

–        Export Compliance – the U.S. Department of Commerce and the U.S. Department of State are responsible for licensing any shipment leaving the U.S. Sanctions have been applied to Russia since the invasion of Crimea in 2014. The new, recent sanctions make it nearly impossible to obtain a license to export to Russia now. A large number of people have been placed on the Denied Persons List and the Entity List, restricting all shipments to these individuals and companies. Penalties and prosecutions (you’ll go to jail for violations) are increasing for companies that trade, even unwittingly, with Russia or other entities deemed irresponsible or a threat to national security. This includes any transaction through a U.S. bank or foreign bank on the sanctions list.

–        Russian Airlines – approximately 50% of the world’s air cargo moves as belly cargo on passenger aircraft. Currently, Russian aircraft have been banned from the U.S., grossly restricting air cargo capacity. Many European countries have done the same, limiting air cargo capacity and schedules throughout the world. Other airlines are now refusing to provide service to or from Russia.

–        Ocean Cargo Ships – many ocean freight companies have canceled service to ports in Russia and Ukraine, limiting ocean cargo capacity to and from the region.

–        Imports from Russia and Belarus – In March, the U.S. House of Representatives passed legislation moving Russia to the highest import tariff duty rates. This legislation is now awaiting approval by the U.S. Senate. President Biden signed Executive Order 14068 on March 11, prohibiting imports into the U.S. of fish, seafood, alcoholic beverages, non-industrial diamonds, and other products from Russia.

–        Bans On Oil Imports – Restrictions and complete bans on Russian oil imports are likely to have long-term effects on oil prices that we all see at the gas pump, but will also affect fuel surcharges on cargo. FedEx has already announced an increase in prices due to fuel costs.

What To Do Now

For supply chain professionals, be aware of export regulations and sanctions on shipments bound for ultimate destinations in Russia and/or to any individuals and companies now on the Denied Persons List or the Entity List. You should expect more individuals and companies to be added to these lists in the coming weeks. Be sure to confirm that financial transactions such as Letters of Credit or transfers of payments do not involve any Russian banks.

Prepare and budget for increases in fuel costs for your fleet or for surcharges from freight carriers. This is going to get expensive.

Be aware that delays are likely to happen in global supply chains due to shortages of raw materials for manufacturing and disruptions in ocean and air cargo schedules.

Be flexible and plan for alternate suppliers and cargo routes. This mess is going to take some time and cause major supply chain disruptions.

About the Author    

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes 

Are there Uyghurs in Your Supply Chain?

Muslim Uyghurs, held in forced labor camps in China, have become front-page news. More recently, reports from human rights organizations reveal that many top American brands are using these labor camps as factories. Some companies unknowingly include forced-labor component parts from tier two or tier three suppliers.  Are there forced-labor parts in your products? 

U.S. Customs has always banned imports made with forced labor or prison labor, but the issue with products from Xinjiang including tomatoes and cotton reaches deeper into supply chains. Tomatoes and cotton are raw materials for textiles and food.  Cotton grown by forced labor in Xinjiang is sold to Chinese textile producers that in turn sell to Chinese apparel and other fabric manufacturers that may then sell the finished product to international brands.

Through extensive research, the Australian Strategic Policy Institute (ASPI)  found that participating factories were in the supply lines of at least 83 American and international brands including Apple, Nike, Amazon, Victoria’s Secret, and Nintendo – perhaps unknowingly engaging suppliers running Uyghur factories in Xinjiang Province, China or incorporating components made in forced-labor factories.

About 12 million Uyghurs, mostly Muslim, live in Xinjiang, officially known as the Xinjiang Uyghur Autonomous Region (XUAR). Uyghurs speak a unique language, which is similar to Turkish, and regard themselves as culturally and ethnically closer to Central Asian nations than China.

Human rights groups believe China has detained more than one million Uyghurs against their will over the past few years in a large network of what the state calls “re-education camps.” Recent human rights reports have revealed that many of these Uyghurs are being rented as slave labor to Chinese manufacturers producing products for well-known American companies.

Photo Credit: Radio Free Asia

Most of the American companies likely had no prior knowledge of this forced-labor issue. Even companies like Apple, whose global supply chains have some of the highest labor standards in the world, discovered forced labor in some of their factories.

Trade with China actually increased during the pandemic despite new restrictions, an ongoing trade war, tariffs that remain as high as 25%, and a damaged relationship with the U.S. But due to Covid 19 travel restrictions, a slow-down in China oversight visits by U.S. companies resulted in the loss of control. Asian trade is showing little sign of slowing.  South Korean, Taiwanese, and Chinese exports to the U.S. all at records in September October.

The Lesson for Supply Chain Professionals

The lesson here is very clear: You must actively control your supply chains.  It is not enough to initially audit and certify your factories and suppliers. Active oversight must be an ongoing effort with in-depth reviews of labor practices. Your quarterly audits of tier 1, tier 2, and tier 3 (maybe more) suppliers need to be deep dives and effective at ferreting our violations. Supply chain managers may even want to engage a trusted auditor in China to visit the factories often, in between quarterly audits.

We have a responsibility to assure our global supply chains are ethical, safe, and lawful.

About the Author

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

What Seems Impossible Is Merely Difficult

I am a member of a very unusual book club. Our club members include four published authors including me, plus several Stanford, Harvard, and Berkeley graduates, engineers, scientists, and entrepreneurs. We meet monthly and often chose a difficult book to analyze and examine in depth. We discuss the story, the style, the voice, the historical period, the philosophy, and the author’s life. This month we are reading “A Portrait of the Artist as a Young Man” by James Joyce.  This book is written in the Stream of Consciousness style and is quite a challenge to read and appreciate.

That’s the point – the challenge is what makes us better writers, engineers, and scientists. When we stretch our ability in different ways, consider different styles, and points of view, we learn and improve the way we write and solve problems.

As a supply chain professional, this is an excellent lesson for me and for all of us to learn.

Stretching for new ideas

It’s easy to do the same thing or make small iterations of the same thing, in supply chain operations.  That’s “small ball.” We might improve a process, add new metrics, or try a different supplier.  But these are small, safe gestures that produce small results. To truly make progress in our chosen field, we need to stretch our ability to discover big ideas and challenge the status quo.

Supply chain people often get bogged down in the day-to-day operations of keeping freight moving, keeping pipelines full, and keeping key performance measurements (KPIs) within the boundaries. In today’s global supply chain environment, these things are not enough. We need to learn to be nimbler and more creative and to consider different points of view, and different approaches.

During the pandemic in the U.S., we experienced the typical cycle of denial, dealing with the unknown, using our traditional techniques and processes, then creating new and different responses. The most creative and forward-thinking companies started early to consider their alternatives and create outside-the-box solutions. A tractor manufacturer in the mid-west, set up a war-room as early as the end of January 2020 to prepare responses to the supply chain that was beginning to choke off parts coming from China. By February, this company considered chartering planes to bring in parts from global suppliers, the 3D printing of parts, reengineering their products to work around new shortages, and scouring the U.S. for alternative suppliers at any price. They were thinking outside the box – stretching for creative ideas and ways to respond to shortages.

Think differently

Innovative new ideas come from thinking differently. Consider Malcolm McLean’s invention of the ocean container in the 1950s, Steve Job’s first Apple computers in the 1970s, and Michael Dell’s make-to-order computers in the 1980s.  These breakthrough thinkers introduced radical new ideas, not just incremental change.

The US has been the innovator of most breakthrough technologies and processes developed since World War II. With our constant emphasis on generating products that are newer, better, and faster, these innovations have set America apart from other nations.  Yet innovation is not just for the super creative types like McLean, Jobs, and Dell, or the most advanced American engineers.  Everyone can contribute to innovation in products and supply chains.  Your mindset must be set to analyze, reengineer, and take big leaps when solving supply chain issues.

As my colleague, Kimberly Wiefling says, “things that you think are impossible are merely difficult.” You just have to work hard at thinking creatively and be brave about taking big leaps and big risks.  There is no room for “small ball” in global supply chains.

About the Author

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

Reshoring Is Booming

orange robot arms on the production line. controlled by a computer with artificial intelligence.

Reshoring Is Booming – Some Astonishing Statistics

Reshoring manufacturing is booming – but reshoring cannot simply be defined as reestablishing new factories in the U.S. that were once in China. Reshoring is defined more broadly to include:

• Manufacturing returned to America
• New sourcing of raw materials and parts in the U.S.
• Expanding operations in America vs. going overseas
• Foreign direct investment in U.S. manufacturing

Statistics on reshoring are suspect

Statistics published with actual numbers of reshored jobs are suspect and unverifiable.  These published statistics are typically directionally correct, but cannot be verified. Some organizations count the number of jobs being returned as they are published in newspapers and press releases – numbers that might never materialize.  Others use import statistics that do not account for expansion projects in the U.S. Both are sketchy approaches with unreliable results.

While there is no official way to track and verify the actual reshoring numbers in terms of jobs returning or revenue increases, we have evidence that the reshoring trend is quite positive. We can also confirm anecdotally, the positive trend by the number of inquiries and consulting projects we get at the Reshoring Institute (www.ReshoringInstitute.org). Our “business activity” test is way up!

One startling number I saw recently was published by Thomasnet. Thomasnet surveyed over 500 industrial buyers – 83% of these buyers said they intended to find and place 10-12% more orders with domestic suppliers this year than last.  Based on Thomasnet’s collected buying data from past years as compared with next year, this simple change – buying 10%-12% more U.S.-made products – could inject $443 Billion into the US economy. WOW!

If these numbers are anywhere near correct, we are in for a wild ride. Thomasnet is a reliable source, and although the numbers are a projection based on a survey, they are likely to be directionally correct. Since we define the new placement of orders in the U.S. as part of reshoring, this number made me sit up and take notice. The trend is indeed positive.

The effect on the U.S. economy

What effect is this likely to have on the American economy? It’s like putting dry kindling onto a roaring fire. The effect is immediate, visible, and significant.  If this much money is put into U.S.- made industrial buying, we will all surely feel the positive effects of a roaring and on-fire economy.

There is also a magnifier effect when new jobs are added in the manufacturing sector. Based on the Bureau of Economic Analysis (BEA) annual input-output tables have calculated that a dollar’s worth of final demand for manufacturers generates $1.48 in other services and production. Other economists put the number higher – as much as $2.00 for every $1.00 spent on manufacturing.

Manufacturing is the backbone of a robust economy.  In the 1960s, manufacturing accounted for about 25% of the U.S. GDP. In recent years it’s dwindled to less than 12% and employs only 9% of the workforce. There is a lot of room for growth in American manufacturing if we can make the economic case for bringing manufacturing back. We must focus on automation, advanced manufacturing techniques, and reduction of labor to reduce overall costs and increase productivity.

China’s robust growth over the past 25 years can be attributed to a manufacturing economy that is nearly 40% of China’s GDB. China makes and sells more manufactured goods than any other country on the planet.  It is time we focus on rebuilding manufacturing in America.

The reasons for returning manufacturing to the U.S.

The pandemic is the primary reason for this uptick in the return of American sourcing and manufacturing. Previous efforts including the tax reduction act of 2017, and the global trade war with China contributed but created only lukewarm results. The pandemic, on the other hand, introduced supply chain risk and exposed America’s vulnerability in supply chains for medical products and supplies.  Now we are experiencing severe semiconductor shortages, steel shortages, and shortages in other industries.

If some of the statistics for reshoring and industrial buying are true, or at least directionally correct, then American manufacturing is poised for rapid rebirth and astonishing results. I am very optimistic that Reshoring will continue to expand in America.

About the Author

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.

Who Owns Those Factories at the US-Mexico Border? Surprise! It’s probably the Chinese

Last week I had an opportunity to visit the new US-Mexico commercial border crossing at Otay Mesa, CA – about 20 miles east of the San Diego/Tijuana border crossing. The Otay Mesa crossing was built for trucks and rail crossings at the border, not for people.

There is new construction everywhere on the US side of the border with enormous warehouses, including a new 2.2 million-square-foot Amazon warehouse. All this new development is also creating hundreds of new jobs on the US side, for warehouse workers, truck drivers, customs brokers, and other support businesses such as restaurants and truck stops.

From the US side, we could see the looming new black border wall, crawling like an ugly scar across the landscape. Our tour guide said he thought it was pretty useless, as several tunnels have been discovered that run from Mexico to the US, right under the wall. One was discovered recently in a storage yard for wooden pallets a few blocks from the wall. The consensus is that the wall isn’t doing much, if anything, to solve the immigration and illegal drug problem.

But as we looked across the border to the Mexico side, we discovered something surprising. Many of the companies building factories in the commercial areas are Chinese companies! Over the past few years, there has been an increase in investment in factories along the border bankrolled by the Chinese.

When the US withdrew from the Trans-Pacific Partnership in 2017, we left a void that was quickly filled by Chinese investment. Both Mexico and Canada remain in the TPP and have seen Chinese investments grow along their borders with the US.   Investment is significant in the Maquiladora zones. A maquiladora (also known as a twin plant) is a factory in Mexico, usually near the US-Mexico border, that operates under a favorable duty, or tariff-free basis.

Logistics costs are also a big factor. With trans-Pacific ocean container rates more than doubling in the past few years, plus capacity issues with steamship lines and port congestion, it makes economic sense to manufacture in Mexico. Logistics costs via truck transportation from Mexico are far less expensive.

To avoid the Trump tariffs imposed on China, many Chinese companies have invested in operations in Mexico for products being sold into the US. If enough of the value of the product originates in Mexico, goods imported into the US can take advantage of the USMCA free trade agreement (formerly NAFTA) and pay no customs duty. Simply shipping Chinese goods from Mexico into the US without being substantially transformed, does not qualify. Instead, Chinese investors own the factories, but raw materials and parts originate in Mexico. For Chinese companies that are investing in Mexico, the opportunities are enormous.

Chinese factory development and investment on the Mexican side of the border has resulted in job creation in Mexico, but also in the US, through logistics operations and support services. While this does not represent growth in U.S. manufacturing, it does represent growth in other kinds of jobs.

As trade relations with China deteriorated under the Trump administration, the Chinese have found other avenues to sell products into the lucrative US market, including via the new Otay Mesa crossing.

About the Author

Rosemary Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters. She is passionate about Reshoring.

Jaw-dropping Spectacular Supply Chain Management

I am so impressed.  I just got my second Covid vaccine. I scheduled both the first and second appointments online with no wait and at the appointed time I drove to the nearby vaccination location in Silicon Valley. There was no line. I filled out a form, showed my insurance card, and was escorted to a vaccination station, got my shot, waited 15 minutes, posted a photo on Facebook, and left.  The whole process took less than a half-hour. It was very well organized, and stress-free. I am seeing postings from my friends all across the country who had similar experiences.

Walking back to my car after the second easy-peasy experience, I was so proud of my peers – the magnificent American supply chain professionals who made this all happen.

Let’s start with manufacturing. As companies such as Moderna, Pfizer, and Johnson & Johnson awaited approval by the FDA, behind the scenes, manufacturing professionals were gearing up production lines in volumes never before experienced.  But it wasn’t as simple as just scheduling more production time. Production lines had to be reconfigured to handle the new vaccine. Behind the scenes, planners and schedulers were determining what components they needed in what quantities, to arrive at the right time for production – not too much to clog up the line and not too little to halt production.  Purchasing people were working around the clock to place orders for enormous quantities of ingredients.

Then there were the purchasing professionals who ordered the vials, packaging, and shipping containers that were temperature-controlled to protect the precious cargo – again scheduling just the right amount of supplies at just the right time, all the while paying attention to cost factors.

When Johnson & Johnson was seeking approval for their vaccine, the Biden administration worked with J&J’s competitor, Merck, to make manufacturing facilities available to J&J – a first in this very competitive industry. Merck repurposed some of its existing facilities for rapid large-scale manufacturing of the J&J vaccine.

Once the vaccines were manufactured, they had to be transported to the distribution centers and kept at extremely low temperatures, following CDC’s strict guidelines. Once again supply chain pros stepped up to the challenge. FedEx, UPS, DHL and several airlines collaborated and practiced how they should and would handle the vaccine to flawlessly execute the plan and deliver the cold cargo to distribution points.

Meanwhile, back in Washington, talented supply chain project managers were coordinating with state and local governments to get the vaccines to healthcare facilities, stadiums, drug stores, and other distribution points. Governments and health care companies staffed up to handle the volume.

Finally, the distribution of the vaccines to the American people required sophisticated organization of buildings, parking lots, signage, shot-givers, and helpers. This coordinated distribution is also a supply chain function.

It feels like a Symphony orchestra playing Bach or Mozart. The sound is coordinated and wonderful, and the effect is emotional and uplifting. These results are completely dependent on each musician playing their part at just the right time and tempo and volume to assure a beautiful result. The supply chain of vaccine distribution is a symphony of coordinated parts with the same wonderful uplifting goal.

In the end, it is all working beautifully. I am enormously proud of my supply chain colleagues and friends.

Bravo American supply chain professionals who made this all happen. The nation is grateful. You are rock stars!

About the Author

Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes  Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.  She is passionate about Reshoring.