From car parts manufactured in China to toilet paper sold at the grocery store, the pandemic has shown that our global supply chains are unable to react effectively to major, sudden changes.
David Simchi-Levi, Professor of Engineering Systems at MIT, has written extensively about the lack of resiliency in our supply chains. In his latest article for Harvard Business Review, co-authored with his wife Edith Simchi-Levi, he describes how many are calling for production to be brought “home” from China. However, re-shoring isn’t necessarily the best response. Companies can find it’s costly and time consuming to bring production back home when China is a main — if not sole — supplier of so many products. China and India also have more lax environmental regulations. Therefore, setting up production domestically may require the development of new clean technologies.
Moreover, even when production is entirely domestic, shortages can still occur. For example, the recent meat shortage was the result of companies trying to reduce costs by consolidating manufacturing. But as we discovered, shutting down even one plant can have major repercussions throughout the country.
Simchi-Levi suggests that the best way to make our supply chains more resilient is to map the layers of the distribution network and apply stress tests to see where the bottlenecks occur. Risk can lie in hidden, unexpected places, and these stress tests can bear them out. Simchi-Levi’s work with the Ford Motor Company, for example, found unexpected high risk associated with small, even local suppliers. This included a low-cost sensor widely used in its vehicles. If the supply of it were disrupted, the carmaker would need to shut down its manufacturing operations, but because the total amount spent on this item was low, Ford’s procurement group had not paid much attention to it. Simchi-Levi says only by understanding the vulnerabilities in our system can we know best how to prevent future turmoil. Read the full article.
David Simchi-Levi teaches in the Executive Education program Supply Chain Strategy and Management, now offered in a live online format. Watch a recording of his recent webinar, "From Pandemic Disruption to Supply Chain Recovery," here.