Perspectives on Various Issues of Interest

Taming the Counterfeiting Epidemic

In a recently published article, we present the findings of our research that suggests that successfully combating counterfeits requires the attention of a broad collection of organizational functions. It works best with a multilayered strategy encompassing diverse methods and engaging the entire organization and its partners. We recommend that organizations tackle counterfeiting with a cohesive plan for identifying, containing, and preventing it. This comprehensive process means routinely keeping tabs on contract manufacturers and charting how products move through the supply chain. It includes scoping out what is for sale in consumer markets, deploying covert markings, reviewing warranty claims, educating customers, and partnering with key agencies and competitors.

While companies may never completely eliminate bad actors from copying products or diverting goods from authorized channels, they can significantly reduce counterfeiters’ market penetration and restore lost revenue. Successful approaches may involve cutting off counterfeiters’ access to markets, eliminating their supply of unauthorized goods, or making a product more difficult to copy. Building on insights from our case studies and discussions with practitioners, we provide details on the three activities that together help in developing a robust action plan comprises: identification, containment, and prevention. Identification helps in gaining Insight Into the extent and nature of the counterfeiting problem. Containment helps in limiting the problem’s spread. And prevention helps in stopping future counterfeit operations before they start

Source: Taming the Counterfeiting Epidemic - A multilayered approach is essential to effectively combat counterfeiting and unauthorized sales. MIT Sloan Management Review, Forthcoming (Fall 2023).

 

The mutual causality between supply chain disruption and innovation in low-income markets

In a recently published article, my co-author and I argue that low-income markets have unique constraints that trigger the co-evolution of innovation and disruption in such markets. When disruptions occur in global supply chains, and in particular, in low-income markets, they spur innovations that may be necessary to address both existing and potential future disruptions. However, such innovations in turn create disruptions to existing supply chains, and they may also create new supply chains. We highlight the unique opportunities and constraints that exist in the low-income market contexts that result in interesting and unique dynamics between innovation and disruption. Further, we identify the mechanisms through which innovation-disruption mutual causality occurs—as well as the boundary conditions for these mechanisms.

Using several case examples including Chotukool, Lagos, Nigeria Apapa port, MPesa, Momo, E-Choupal, Zipline drone technology, Dabbawallah, Danone South Africa, Kobo 360, Nestlé’s miniaturized “pure water” sachets, Barefoot College, Diagnostics for all, and Haul247 we discuss how disruption and innovation reinforce each other. Our study presents an integrated framework that considers the underlying characteristics of supply chain disruption and innovation. Supply chain disruption is characterized by impact (which can be low or high), probability (which is high), and level of control (which is low). We characterize innovation by considering whether it is affordable, available, accessible, has high level of awareness/relevance, and has low resource requirement. The mutual causality between supply chain disruption and innovation is strengthened by human and social capital that organizations in low-income markets are able to develop and creative resourcing that needs to move from autonomous to directed over time. Our study also emphasizes that weak institutions can paradoxically strengthen the force with which disruption and innovation reinforce each other. In addition to these moderating factors that strengthen the relationship between disruption and innovation, we also discuss the motivations, cognitive and social mechanisms that link supply chain disruptions to innovation, as well as information availability, structural changes and social equity that link innovation to supply chain disruption. The integrated framework presented in the paper is as follows:

This study offers directions for policy makers and managers regarding the macro-level and micro-level factors that influence innovation and disruption, as well as how to navigate the interplay between disruption and innovation in LIMs. It is noteworthy that this interplay can act as both a deterrent and an opportunity. An understanding of how LIM micro-level and macro-level factors influence disruption and innovation should help in decision-making and policy formulation. In addition, this study provides guidance to policy makers to work closely with organizations, as new innovations within these companies help to manage disruptions emanating from LIM constraints, thereby requiring innovative thinking on the policy front as well. Public-private partnerships can ensure that resource-constrained innovations at the organizational level are optimized and strengthened through policy innovations at the macro level.

Source: Goke, A., Nair, A. 2023. From Chaos to Creation: The mutual causality between supply chain disruption and innovation in low-income markets. Journal of Supply Chain Management, Vol. 59, Iss. 3, 20-41.

 

Strategic supply chain technology

According to the 2022 Gartner Supply Chain Technology User Wants and Needs Survey, supply chain organizations are prioritizing (i) increasing productivity and efficiency, (ii) improving resiliency, continuity, risk and security, and (iii) fostering innovation around new operating models and processes. The report presents the following framework for broader strategic supply chain technology themes for 2023.

 

 

Technologies focused on employee engagement, mobile asset optimization, and industry cloud platforms, help in optimizing operational performance. Cyber resilient supply chains, supply chain integration services, and compassable application architecture help in scaling by securely building the connectivity, resiliency, agility and flexibility for growth and maturity. Smart operations and actionable AI are pioneering technologies that help in enhancing decision making by leveraging asset and human connections.

 

These technologies are expanding and building on technologies focused on ecosystem enablement, sustainability, and digital supply chain twin that have already evolved. These technologies are also forming the building block for new technologies such as multi agent orchestration platforms, logistics platform business models, last-mile delivery, and industrial metaverse that are entering into the landscape.

Growth of Software as a Service (SaaS) & Platform as a Service (PaaS)

The Telecommunication and Information Technology Industry has seen a major growth during the six-year period from 2017 to 2022. The industry has grown from $697,958 million to $1,136,645 million. The key technology segments of this industry include: Fiber Optic (Fiber to the home or building FTTH/B), SAAS, Cable, digital subscriber line (xDSL), portable PCs, higher education, infrastructure as a service (IAAS), and Pre K-12 and K-12. Additionally, in 2017 the following technologies represent relatively smaller percent of the total market (less than 2%): Desktop PCs, Fixed Wireless Access, Data Analytics, Business Process Applications, Platform as a Service (PaaS) etc.

In 2017, Fiber Optic (FTTH/B), SAAS, Cable, and xDSL represented the top four technologies with 29.9%, 12.1%, 11.8%, and 11.7%, respectively, of the total market.

Source: MarketLine

In the Americas, Asia Pacific, Europe, Middle East and Africa (MEA), the dominant technology was Cable (29.9%), Fiber Optic (FTTH/B) (60.3%), xDSL (31.41%) and Portable PCs (20.89%), respectively

Source: MarketLine

Between 2017 to 2022 the percent share of xDSL dropped from 11.68% in 2017 to 4.49% in 2022 and cable technologies dropped from 11.83% in 2017 to 8.49% in 2022). However, SaaS grew from 12.1% to 17.8 and PaaS doubled from 2.4% to 4.8%.

Source: MarketLine

By 2022, SaaS was the most dominant technology in Americas, Europe and MEA.

Source: MarketLine

Robotics Value Chain

The robotics value chain comprises of hardware components, software components, robot manufacturing and robotics as a service. 

Leaders and challengers in the space of hardware components, software components, robot manufacturing and robotics as a service are as follows:

Source: Robotics AI and cloud computing are unlocking the potential of robotics - MarketLine Theme Report, February 2022.

The Impacts of digital technologies on coping with the COVID-19 pandemic in the manufacturing industry

The COVID-19 pandemic’s impacts have been devastating for the global economy, and particularly for manufacturing companies. Many firms were unprepared for a crisis of this magnitude and adapted their operations in an ad-hoc manner. Some of these adaptations were facilitated by digital technologies (DTs). In a recently accepted article, my co-authors and I examine extant literature using a systematic review methodology in order to extend our understanding of what DTs have been used in manufacturing companies during the pandemic, how DTs have helped manufacturing companies cope with the pandemic, and how these innovations can be used in the post-pandemic world. The major outcome of our study is a novel classification of DT applications in the pandemic setting in the manufacturing industry. In addition, we propose an agenda for future research.

Source: Ardolino, M., Bacchetti, A., Dolgui, A., Franchini, G., Ivanov, D., & Nair, A. (2022). The Impacts of digital technologies on coping with the COVID-19 pandemic in the manufacturing industry: a systematic literature review. International Journal of Production Research, 1-24.

Innovation and supply chain management for uplifting underprivileged communities

Last month (July 2022) I spent time in an Indian village working with an organization that connects rural communities to solar, water, education, professions and advocacy to help communities and individuals take control of their lives and the well being of their communities. As part of its mission, Barefoot College International (BCI) aspires to increase economic mobility by making vocational and educational opportunities accessible to women and girls from the most marginalized communities around the world. The organization seeks to ensure that every woman and girl has the skills and knowledge she needs to be a catalyst for change to the benefit of herself, her family and her entire community. The organization is involved in four programs - Solar, Enriche, Water, Livelihoods.

The Solar program seeks to ensure that every woman and girl has the skills and knowledge she needs to be a catalyst for change to the benefit of herself, her family and her entire community. BCI achieves this by making vocational and educational opportunities accessible to women and girls from the most marginalized communities around the world. By training women to become Solar Engineers, even if they are illiterate or have no formal education, rural resilience is forged by each village at a time.

The Enriche program supports women’s aspiration to transform themselves and their communities. It provides them with the opportunity to embark on an empowerment journey; a journey to gain the confidence, skills and knowledge they need to reach their full potential as agents of sustainable change and to support their entrepreneurial aspirations.

As part of the Water program, the organization aims to harness every drop of fresh water that falls from the sky rather than relying on hand pumps, wells, and unpredictable groundwater levels. By combining traditional harvesting practices with new technologies, BCI make water accessible, clean and safe to drink for millions of people in need.

The Livelihoods program plans to address the challenges of climate change by envisioning soil-based livelihoods that generate resilience and dignified wages for small landholding farmers using Regenerative Agriculture, Permaculture Principles and Agroecology built systems to sustain life and care for land.

I primarily worked with the team that manages the supply chain for the Solar program. 

Notwithstanding the lack of formal education (in the case of many team members), I observed a strong desire to learn and improve operations and supply chain. I shared some thoughts on improving supply management, inventory management, and quality management practices with the team and also learnt from them.

My work with the organization gave me an opportunity to understand how best practices that are widely used in developed (and for-profit) contexts need to be tailored in light of the underlying contingencies.

I also learnt about the innovative ways in which educational programs are being developed for women.

Overall, an enlightening experience and I hope to continue my efforts to contribute to strengthening grassroots innovation, operations and supply chain management practices that are aimed at uplifting underprivileged communities.

Digital Transformation of Procurement Value Chain

Thermal management technologies - Supply chain and operational issues

In this post, I cover supply chain and operational issues faced by a small and medium enterprise providing thermal management technology for consumer electronics, lithium batteries, and electric vehicles. I will also allude to actions that are being taken to address supply chain issues. I would be interested in hearing your thoughts on the outlook for small and medium enterprises operating in this space in light of prevailing operational and supply chain challenges.

The thermal management technologies market is evolving rapidly, especially in the case of consumer electronics and lithium batteries use. Increasing adoption of renewable energy resources is the major factor driving the thermal energy storage market with the rapid industrialization across the world has increased the need for continuous power supply, which positively leads to the growth of the overall thermal energy market during the forecast period. Developments in the electronics industry have culminated in a considerable surge in the power densities, which have led to the introduction of smaller, smarter products. These advancements in the industry have led to an increased need for innovative thermal management technologies as they improve the system performance and reliability by avoiding the heat generated by the devices. The electronic packaging trend has increased the performance and reduced the size of the product. This has led to a significant increase in the power consumption of the system. A report from Grand View Research said that the global thermal management technologies market size is expected to reach USD 20.14 billion by 2024, according to a new report by Grand View Research, Inc. The industry is primarily driven by the growth in the emerging trend of miniaturization of electronic devices and components.

The Grand View research report said: "Advanced technological research is expected to produce more efficient and cost-effective thermal management solutions in the future. The key industry participants are extensively focusing on the development of optimized thermal management solutions that are cost-effective and are applicable across a range of end-use applications. However, the industry is anticipated to witness various issues associated with modularity in designing and reliability of modeling, which are presumed to challenge the growth over the forecast period. Current cooling technologies, standard heat sinks, and fans are rapidly approaching their cooling capacity limit, and thermal management is becoming a critical step in enabling enhanced product functionality. The thermal management software is anticipated to exhibit a significant growth in the near future owing to the increasing adoption of the software heat removal techniques and simulations to reduce moments of peak heat impact and reduce the risk of failure."

Several companies compete in this sector including Arkema S.A., BorgWarner Inc., Continental AG, Dana Limited, Gentherm Incorporated, Grayson, Hanon Systems, Kendrion N.V., Lord Corporation, MAHLE GmbH, Marelli Corporation, Modine Manufacturing Company, NORMA Group, Orion BMS by Ewert Energy Systems, Inc., Polymer Science, Inc., Renesas Electronics Corporation, Robert Bosch GmbH, Samsung SDI Co. ltd., Tesla, Inc., Valeo S.A., VOSS Holding GmbH + Co. KG. and KULR. Given that many of the competitors are OEMs or diversified corporations, focusing on a small and medium enterprise offers some insights into key supply chain pain-points in this sector. I am focusing on the 2022 Q1 experiences of KULR Technology Group, Inc. (ticker symbol: KULR:US) to identify some of the supply chain and operational issues in this sector.

KULR Technology Group, Inc. (ticker symbol: KULR:US), through its subsidiary, KULR Technology Corporation, develops and commercializes thermal management technologies for batteries, electronics, and other components applications in the United States. It offers lithium-ion battery thermal runaway shields; fiber thermal interface materials; phase change material heatsinks; internal short circuit device; KULR battery cell screening and testing automation system and tech safe case; cellcheck; and CRUX cathodes. The company's technologies are used in electric vehicles, energy storage, battery recycling transportation, cloud computing, and 5G communication devices. It sells its products for applications, such as lithium-ion battery energy storage, electric vehicles, 5G communication, cloud computer infrastructure, consumer, and industrial devices. The company was formerly known as KT High-Tech Marketing Inc. and changed its name to KULR Technology Group, Inc. in August 2018. KULR Technology Group, Inc. was founded in 2013 and is based in San Diego, California.

In 2021 the company increased its revenue by 287% as compared to 2020, mainly reflecting expansion in the commercialization roadmap. Shareholder equity was increased to $16.4 million in the year ending December 31, 2021, from $6.1 million in the year ending December 31, 2020. Gross margins decreased to 54% in the year ending December 31, 2021, from 70% in the year ended December 31, 2020, primarily due to a change in product mix from higher margin products to lower margin services. Selling, General and Administrative (SG&A) Expenses in the fourth quarter of 2021 increased to $3.8 million from $768,000 in the corresponding period in 2020 due to the addition of management and operations team members, sales and marketing activities, and non-cash stock-based compensation paid to employees and consultants. R&D expenses in the fourth quarter of 2021 increased to $705,000 from $68,000 in the same period last year, reflecting a combination of new engineering hires, investments in manufacturing automation, new product developments, and research in high-areal capacity battery electrodes and solid-state electrolyte. Loss from operations was $4.0 million for the fourth quarter of 2021, compared to $677,000 from the same period in 2020. Higher SG&A costs offset higher sales while the gross margin decreased from 76% in the fourth quarter of 2020 to 70% in the comparable 2021 quarter, as a result of lower margins on some larger jobs. Net loss for 2021 increased to $11.9 million or a loss of $0.15 per share, compared to a net loss of $2.9 million, or a loss of $0.03 per share in 2020. The Company reported cash balances of $14.9 million as of December 31, 2021, compared to $8.9 million in the same period in 2020. 

In the first quarter of 2022, KULR's sales reduced by 52%, from $418,000 in 2021, to $200,000 this year. General and admin expenses increased to $3.5 million in the first quarter of 2022, from $1.5 million in the corresponding quarter last year. The increase of 136% was due to additional marketing and advertising expenses, consulting fees, and non-cash stock compensation pay for employees and consultants, and the expansion and kiting out of new office facilities. R&D expenses increased 486%, from $123,000 in the first quarter of 2021, to $721,000 in the first quarter of 2022. The loss from operations increased 141%, from $1.5 million for the first quarter of 2021, to $4.1 million for the first quarter of 2022. The increase in the operating loss included 0.9 million increase in non-cash stock-based compensation expense, and increases in payroll, advertising, and marketing expenses, as well as professional fees and research and development projects. The company's net loss increased by 141%, from $1.7 million in the first quarter of 2021, to 4.2 million in the first quarter this year. The net loss per share for the first quarter of 2022 was four cents, compared to two cents for the comparable period last year. As of March 31st, 2021, the company reported cash balances of $10.1 million, compared to $6.2 million on March 31st, 2022. The company raised over $7 million from the issuance of warrants and promissory notes and have established a $15 million standby equity purchase agreement. 

Over the course of past five years, the company's sales, cost of goods sold and profit margins saw major increases in 2018, followed by two years of decline (2019 and 2020) and then an increase in 2022. Except for 2019, the sales, general and administrative expenses have increased as would be expected for a growing company in a growing sector. Similar trend can be observed in R&D expenses to keep up with new innovations and product development.

The company's earnings before interest, taxes, depreciation and amortization are negative.

Supply chain disruptions and action plan

Based on the information available for 2022 Q1 earnings call, the following supplier chain issues and remedial actions were highlighted.

• supply chain disruptions resulted in over $325,000 worth of inventory that couldn't be shipped due to the COVID lockdown
• COVID lockdown that occurred in Shanghai, China at the end of March, left KULR production on the dock with no option to ship.

To respond to these issues primary following initiatives were taken:

• secured $55 million in additional capital to drive two key initiatives
  • securing battery cell supplies of over 500 megawatt hours in energy capacity from tier one battery manufacturers, who are securing the inventory in anticipation of fast-growing demand from key end markets in energy storage and e-mobility.
  • control supply chain and manufacturing costs and reduce disruptions risk by bringing much of the supply chain and production capabilities to North America
• maintain its margins through improvements in logistic flexibility and response times that can offset potential increase in labor costs.
• create a buffer stock of materials, which the company is in negotiations to have its customers take immediately as a hedge against future potential lockdowns
• continue investment in new and automated test and production equipment first implemented in the Q4 of 2021.
• onboarding new tier one battery manufacturers to obtain battery cell supplies of over 500 megawatt hours in energy capacity.
• multisourcing
• geographical diversification of suppliers
• onshoring production in North America
• creating a buffer stock of materials
• developing modular platforms for new product development
• expand operations and support new business

Information on accounts receivables indicate a growth in the past two years. Finished goods inventories and investments in plant, property and equipment have been growing

Past five year balance-sheet:

The accounts payables saw a decline in 2020 but then increased in 2021, reflecting expanding operations.

For the fiscal year ending 2021, the return on assets were -50.60% and return on equity was -105.95%. Total debt to equity ratio was 5.04, current ratio was 6.41 and book value per share was 0.16.

Below, I present the summary of stock market performance:

 

Strengthening the Personal Protective Equipment Supply Chain

The vulnerabilities of global supply chains were exposed by the COVID-19 pandemic. In this post I first consider the geopolitical landscape and disruptions in PPE supplies by reflecting on the conditions before the pandemic until the time when countries started to take steps toward managing the crisis. Next, I discuss prevailing contextual conditions, future demand and supply trends, and directions for risk management through government interventions, public-private partnerships and organizational best practices.

It is instructive to start from pre-COVID time to understand the distribution of various PPE products and global demand. Before COVID-19, the global PPE market was worth roughly $60 billion. PPE products are destined for numerous different economic sectors such as healthcare, mining and construction. According to an April 2020 analysis by the Asian Development Bank, the healthcare sector PPE market alone was estimated at $2.5 billion in 2018 as shown below where the revenue is in $ millions.

As for 2020, the United States (US) was a major manufacturer, accounting for 20 % of the global production of every category apart from gloves.

Source: Mordor Intelligence (updated in November 2020 ), Statista research department, COVID-19 PPE demand and supply perspectives, Industry experts interviews (November 2020)

Despite being a major PPE producer, the US relied heavily on imports to meet local demand.

Source: ITC Trade Map

The global trade network in 2018 shows high geographic and regional concentration in the PPE supply chain. There are three regional clusters: Asia, Europe, and the US. Among countries making these products, China (PRC) clearly plays a central role in the trade network (except for gloves where countries such as Malaysia, Thailand, Indonesia are dominant due to abundance of rubber).

Source: ADB calculations using data from United Nations. Commodity Trade Database.

In fact, PPE concentration in Asia has intensified in the past decade or so.

Source: Asian Development Bank (2020)

To counter the supply shortage of PPE during pandemic, several nations had instituted export restrictions. The efficacy of these measures could be debated since they also could have resulted in less optimal investments in new capacity (since manufacturers would take the restricted market into consideration when taking capacity decisions), high burden on public finances (since governments had to provide greater fiscal inducement to encourage domestic manufacturers to increase capacity aimed at the restricted market), and loss of cooperation as well as potential retaliation by nations.

Source: International Trade Center website (in November 2020)

Source: Global trade alert                                                                                   Source: : Committee for the Coordination of Statistical Activities (2020)

Considering product shipments from China to US, once China was able to control its own pandemic, supply chains for garments, visors, thermometers, gloves, simple masks and N-95 masks linking China to the US adapted very well. The need for gloves in the US market was served by other countries such as Malaysia, Thailand, and Indonesia, since the plastic gloves from China are relatively less in demand in the US. Technological sophistication of ventilators made in China also were not compatible with the US needs, which reduced the adaptive ability of this supply chain.

Source: Dallas, M. P., Horner, R., & Li, L. (2021). The mutual constraints of states and global value chains during COVID-19:The case of personal protective equipment. World Development, 139, 105324.

There was indeed a component of luck in that the pandemic in China had eased as it spread to the west. Future pandemics may not reflect such a temporal dynamic. Additionally, the phenomenal increase in the exports of simple masks and N-95 masks could have been a result of mislabeling and customhouse chaos during the pandemic.

The PPE supply chain is faced with several bottlenecks as shown in the following illustrative example.

Medical supplies were delayed due to shipping challenges. Demand for shipping and transportation services had increased significantly, but the labor available to provide these services had reduced. The backlogs and congestion produced significantly delays, uncertainty and cost increases.

To respond to the crisis, several countries boosted their domestic production base. In the US, the Defense Production Act was activated to mobilize domestic industrial base. The EU accelerated joint procurement procedure with 26 member states to ensure supply of medical equipment across Europe. Structural funds were directed to the supply of medical equipment. In India, financial incentives were provided for the production of critical supplies. Digital platform was developed to identify and fill the shortage of critical supplies. Japan provided subsidies for the production of face masks. State-owned firms in China were repurposed to supply medical materials. Loans and subsidies were provided to firms producing critical supplies.

In a survey, over half of respondents expected a significant or somewhat decreased presence of supply chain components in China, while 75 percent expected a significant or moderate increase in the United States. Similar expectations emerged for the European Union, the UK, Canada, Australia, and New Zealand, for which half of respondents expect an increase in components.

Source: Atlantic Council

44 percent and 53 percent of respondents cited inadequate planning for both near and long-term disruptions as the top vulnerability in their supply chains, respectively. In addition, over 40 percent of respondents listed geographic or regional concentrations as well as bottlenecks and single point dependencies as core vulnerabilities.

Source: Atlantic Council

Over 60 percent of respondents foresee more prioritization of contingency planning and crisis modelling in response to the pandemic’s disruptions. In addition to planning, they ranked location diversification of their supply chains as a top priority, followed by relocating them within the borders of the primary country of operation.

This focus on re- or onshoring due to the growing concern about foreign dependencies and increasing demand for self-sufficiency resulted in several new manufacturing sites being established for the production of PPE products.

Source: Health Industry Distributors Association

Going forward, PPE spending is forecasted to nearly triple by 2027. Demand for N95 respirators will continue to grow more than 5% per year through 2024. Increased demand and limited manufacturing capacity combined to create a predicted 37% shortfall in nitrile gloves in 2021. Raw material shortage used in making isolation gowns will continue to impact prices.

 

The US PPE market is expected to group 12.5% a year through 2024, with 80% of sales in four highly fragmented product segments.

 

Increased focus on workplace safety, product usage to encourage end-user adoption, growth in industries that are heavy PPE users, and shift to online sales will act as tailwind in this market. On the other hand, competition from private labels and low-cost producers as well as uncertain raw material availability will act as headwinds. Some of the price-sensitive segments will witness disruptions while others will need to differentiate in this market.

Government can play an important in strengthening the PPE supply chain by means of reforms to domestic and international trade rules and agreements. It can take necessary diplomatic, economic, security, trade policy, informational, and other actions. Frequent supply chain review and reforms to make supply chain analyses and actions more effective could help. Government can also help in fostering innovation, developing world-class American manufacturing base and ensuring adequate stockpiles in the future.

Public-private partnership can help with coordinating various aspects within the PPE supply chain. These include establishing policies, incentives, and focused federal procurement guidelines; guiding input, development timelines, and product portfolios; initiating combined exercises and planning efforts; incentivizing emergency essential businesses’ use of federal purchasing vehicles; and enabling vertical and lateral supply chain distribution activities. The partnership can help with managing pricing by assessing and maximizing the value and efficacy of federal investments in latent manufacturing capacity. Increased supply chain visibility and data sharing as well as cost-efficient maintenance of inventories could be part of public-private initiatives. Finally, these partnerships can help maintain a specified level of pandemic preparedness and formalize pandemic preparedness as a condition for participation in federal programs.

Organizations need to recognize that supply chain disruptions are becoming more frequent and severe.

Source: McKinsey Global Institute, 2020

Supply chain pressure is only increasing in recent times as reflected below:

Source: Michigan State University's Supply Chain Pressure Index 

Source: New York Fed's Global Supply Chain Pressure Index

Supply-chain leaders believe that the issues by the pandemic will transform supply chains. 73% of respondents in a McKinsey survey indicated that they encountered problems in supplier footprint, 75% faced issues in production and distribution footprints, 85% struggled with insufficient digital technologies, and 48% experienced delays in planning decisions.

Organizations need to understand the bottlenecks along the PPE value chain due to increasing manufacturing capacity. For respirators, supply pressure arises mainly from shortages of melt-blown non woven, a critical ingredient. Supply pressure in for medical masks also arises mainly from shortages of melt-blown non-woven. And for gloves, supply pressure is driven both by nitrile shortages and limited specialist manufacturing capacity

 

Source: COVID-19 PPE demand and supply perspectives, Industry experts interviews (November 2020)

Consumers and non-healthcare workers will drive surgical mask demand in 2021 before dropping by ~ 40 % p.a. in 2021-25. A significant shift in the weight of global PPE demand will move towards Asia.

Source: Source: Mordor Intelligence (updated in November 2020 ), EPI model, WHO assumptions

According to a McKinsey surveys of global Supply Chain leaders, 93% expect to increase resilience across the supply chain, 90% plan to increase digital supply chain talent across supply chains, and 54% expect changes in supply chain planning after COVID-19. As for measures for resilience, 53% plan to consider dual sourcing, 47% plan to increase inventory of critical supplies, 40% are considering near-shoring and increasing their supply base, and 38% plan to regionalize their supply chains. To improve digital supply chain talent, 70% are planning to resell their supply chain labor force and 55% are considering acquiring new talent from the labor market. For supply chain planning 60% are considering implementing advanced analytics, 58% will consider centralizing supply chain planning, and 50% are going to retail faster sales and operations planning cycle. 11% of the respondents indicated facing budget challenges associated with transforming their supply chains.

Given the importance of resilience among supply chain leaders it is important to consider both resistance and recovery capabilities. Resistance capabilities help avoid and contain disruptions. Recovery capabilities enable stabilization and return to normalcy. Companies need to consider not only risk factors (impact and probability of disruptions), but also uncertainties (known, unknowns and unknown, unknowns) associated with disruptions.

Investment strategies need to be considered to manage disruptions effectively. These investments strategies can be categorized as those related to discovery, information, supply chain design, buffers, operating flexibility, security, and preparedness. Discovery related investment strategies would require investing in the ability to identify potential problems in the supply chain as close to the event occurrence as possible. The types of investments include information technology/information sharing, early warning by supply chain partners, forecasting, demand sensing, monitoring of performance in the supply chain. Investment strategies in information call for improving the quantity, speed, and quality of information flow within the supply chain. These could be facilitated by improved information technology, effective communication, and visibility. Supply chain design investment strategies involve designing and implementing supply chains that can be configured and reconfigured quickly in response to changes within the supply chain. Supply base management and supply base reconfiguration can help in this regard. For buffer related investment strategies organizations need to create excess cushions in the form of inventory, capacity and lead times by considering human resource capacity, human resource capabilities/experience, inventory, operating flexibility, and redundancy. With investments in operating flexibility organizations can create a system that can change either the flow or product specifications in response to supply chain problems. Alternatives for transportation and variable bills of material are examples of such investments. Investment in security can help protect the system from supply chain shocks by creating firewalls, quarantine protocols, and development of strengthened supply chains. Finally, preparedness related investment strategies require designing contingency plans for dealing with potential supply chain shocks and carrying out drills using these plans so that various groups would know what they must do and what their specific responsibilities are. This can be facilitated by investing in planning for contingencies, training/rehearsing, risk assessment and insurance.

Different investment strategies contribute towards different stages of resilience. Avoidance stage is best handled by investment strategies in discovery, information, security and preparedness. Containment can be managed by investments in supply chain design, buffers, operating flexibility, security, and preparedness. Investments in supply chain design, buffers, operating flexibility, and preparedness can also help with stabilization. Finally, the return stage is best managed by investments in operating flexibility and preparedness.

Organizations need to realize that there are several modes of reshoring as shown below. Firms can relocate manufacturing activities performed by wholly-owned offshore facilities to wholly-owned onshore facilities (in-house restoring); can relocate manufacturing activities performed by wholly-owned offshore facilities back to onshore suppliers (restoring for outsourcing); can relocate manufacturing activities performed by offshore suppliers to wholly-owned onshore facilities (reshoring for in-sourcing); and can relocate manufacturing activities performed by offshore suppliers back to onshore suppliers (outsourced reshoring). 

Source: Gray et al. (2013)

To be successful, new entrants will need to achieve scale and secure raw materials and specialist machinery. The will also need to acquire technical expertise and quickly build brand strength.

Source: COVID-19 PPE demand and supply perspectives, Industry experts interviews (Nov. 2020)

Organizations need to consider a range of supply (shift away from sole-source contracts), data aggregation and predictive modeling capabilities, understand the price-points for competitiveness, manage quality of products, have built-in redundancies, invest in innovation & reusables, create transparency in their supply chains, and foster talent.