N95 Masks

Lessons for the world from America’s 2020 rush to make N-95 masks

The lessons learned from US attempts last spring to quickly create manufacturing capacity N-95. masksThe hospital gowns worn during the pandemic are like a fairytale. While it may not have the same appeal as the story about the tortoise or the hare, in microcosm, this story reveals all we need about the complexity involved in building supply chains in 21st century. This summer, a Harvard Business Review article described how Shawmuts, a Massachusetts-based company, took several months to build N-95 production capacity. masksBecause everything, from the polyester fabric used to the industrial machines required to make the fabric or assemble it a, is made of polypropylene maskNose clamps, etc., had to come from Germany or China. However, the majority of the expertise in the US was required for hospital gowns. The ‘coalition’The group eventually included companies that appeared to be as diverse as a New York high-fashion boutique, a manufacturer of climbing suits in Oregon, and even a mattress company as they raced to increase their sewing capacity. “Shawmut’s gown operation went from a standing start to an output rate of 350,000 gowns per month in just over 90 days. Shawmut and its coalition partners supported production of 11,000,000 urgently needed isolation gowns,” the article stated. Despite initial orders from America’s national defence logistics agency, Shawmut’s production of gowns stopped this February when orders dried up as other producers overseas caught up and demand abated. Shawmut had to lay off some employees.

Supply chains, once the province of business-school case studies are now the topic of major news. Nearly half a billion shipping containers waited in Los Angeles to unload their goods. This is due to a lack of workers at the port, which is currently operating at just two-thirds its capacity. The US President Joe Biden had no choice but to announce a plan to allow Californian ports to operate 24X7.

In China, Beijing’s edicts to provinces asking them to shift to clean fuel sources led to a sudden drop in coal supplies and left factories in southern China, the epicentre of global supply chains, at the risk of extended power cuts.

Perhaps there is a stronger contender for Time magazine’s person/phenomenon of the year in 2021 than supply chains, but it is hard to think of one.

Two things have become apparent in this era of stress testing. The first is that companies are dependent on China to manage their supply chains. Therefore, they choose to ignore global geopolitical problems. The second is that from Washington to New Delhi, grand plans for building “resilient” supply chains and favouring domestic production are mostly made amid ignorance of how dense and complex supply chains are. Equally, Apple’s chief Tim Cook may regard inventory as an “evil”Ultra-lean inventory may not be the future, however. Apple’s dependence on the assembly of its products in China, where its suppliers employ 3 million people, was questioned in 2015. According to The Wall Street Journal, some of its managers tried to move some production to Vietnam but were stopped by senior management.

Katherine Tai, US Trade Representative was a strong-worded speaker at a Washington think-tank earlier this month. As many today, she seemed to regret China’s accession to World Trade Organization. Tai observed that even before the Clinton administration paved the way for it in 2001, “from the late 1970s to mid-1980s, US exports to China increased approximately four-fold, while imports grew 14 times in less than 1 0 years.” Entire industries in the US have got wiped out. Tai pledged to work with allies “to facilitate a race to the top for market economies and democracies.”

So far, so positive. There is no evidence that businesses are willing to move production overseas in meaningful ways, nor that consumers will pay the higher prices. Despite the Chinese ambush on Indian soldiers at the border last January, which resulted in more than 12 deaths, very few Indian consumers or companies have changed their buying habits. India still relies on China for two-thirds it imports of active pharmaceutical components. Harsh Vardhan Shringel, the foreign secretary, stated last week that bilateral trade between the two nations had increased by 49% in the first nine months. India’s bilateral trade deficit over that period was a staggering $47 billion.

In the US, the Biden Administration recently allowed companies to request exemptions from China to import while US companies lobby for lifting tariffs on Chinese goods. China’s supply chains have a chokehold on our collective buying behaviour. Taiwan’s foreign minister has been welcomed with open arms on a tour of the Czech Republic. The island republic played a lead role in helping build China’s industrial capacity over the past four decades. For an article (bit.ly/2Zo5o8G in Mint this march), I spoke to Taipei politicians who said that they believe India should push for a free trade agreement with Taiwan. This would allow India to become a major player in global supply chains. An FTA with China would be a risky move. Beijing is impatient, but has displayed both the speed of a hare and patience for long games of the tortoise.

Rahul Jacob is a Mint columnist. He was also a former Financial Times foreign correspondent.

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