Long term, some see a ‘decoupling' from China

As U.S. plastics firms grapple with sizable slowdowns in industrial production, some executives and supply chain experts see a potential longer-term benefit from the coronavirus pandemic — a faster pace of reshoring of manufacturing.

Right now the debate is being driven by medical manufacturing needs, as the U.S. struggles to make enough personal protective equipment and other health care equipment. But some see it extending beyond medical, as companies look to reduce risks the pandemic has highlighted for a tightly knit global supply chain.

"I believe that we will see a rapid decoupling from China," said Nick Vyas, executive director of the Center for Global Supply Chain Management at the University of Southern California Marshall School of Business.

When the economy comes out of the COVID-19 crisis, businesses will continue to explore global opportunities, but "the global supply chain trade flow will be very much customer-centric and we will see near or onshore supply chain flow," Vyas said.

Companies will need to make more use of technology like robotics and digital manufacturing to build efficient regional supply chains, he said.

The short term involves weathering what is shaping up to be a sharp slowdown in manufacturing. The Federal Reserve said industrial production fell in March at its fastest monthly drop since 1946.

But they suggest longer-term, the recovery from the crisis is a chance to strengthen U.S. manufacturing supply chains.

Matt Hlavin, CEO of injection molder Thogus Products Co. in Avon Lake, Ohio, said his company is seeing a lot of interest from its customers who want to shorten supply chains.

"These are the conversations we're having every day, we're quoting more business right now, we have more in our queue right now than we've ever had in the history of our company," he said.

It's not all from the pandemic, but he said he believes a "significant portion" of customer reaction is driven by the coronavirus situation and concerns over their ability to get key components.

"I think it's going to have a long-term impact on the supply chain," he said. "I think there's going to be major strategic shifts and incentives."

He pointed to an early April announcement from the Japanese government to put $2.2 billion in its coronavirus relief plan to help companies reduce their vulnerabilities from overreliance on manufacturing in China.

Shifting supply chains is not a simple thing, though, others say.

The more likely strategy to emerge will be building in more redundancy in supply chains, rather than wholesale reshoring, Shannon O'Neil, a vice president at the Council on Foreign Relations, said in a recent article published at ForeignAffairs.com.

Even with the risks coronavirus has exposed for businesses, reshoring too much will make U.S. business less competitive and raise costs for consumers, she said.

Harvard Business School Professor Willy Shih said in an April article on the Harvard Business Review website that COVID-19 will lead to rethinking of supply chains, along with ongoing events like the U.S.-China trade conflict.

But he also cautioned that reshoring is easier said than done, given the complexity of modern products and the desire for manufacturers and consumers for a wide range of goods at relatively low costs.

Some industry groups in the U.S. are pushing for Washington to do much more to tap U.S. manufacturing to fight the pandemic.

The Coalition for a Prosperous America called April 10 for Washington to step up domestic sourcing and gave the government a list of 600 companies, including about 20 plastics firms, it said have capacity to make personal protective equipment and medical devices.

"It's very wrong for OEMs and federal agencies to rely on offshore supply chains without making herculean efforts to tap domestic manufacturers," CEO Michael Stumo said.

CPA advocates for a change in U.S. laws and executive orders from President Donald Trump in the U.S. government's COVID-19 response plans.

Plastics firms say they have been contacted by Trump administration officials searching for ways to boost U.S. production of key goods.

Manufacturing advocates like Ethan Karp see opportunities as the pandemic has exposed shortfalls in domestic production of critical goods, for U.S. firms to apply technology like robotics and Industry 4.0 to strengthen the case for domestic manufacturing.

"It's just going to be a matter of how fast they can do that and how much capital is required, and whether there's any incentives to do that work, and how fast the economy recovers so that they have the cash to be able to make those investments," said Karp, who is president and CEO of the Manufacturing Advocacy and Growth Network in Cleveland.

"I really do hope that this spurs the onshoring that we've been talking about for at least a decade," he said.