Supply chain woes rise to level of national security

This is more than bottom lines, production delays or inventory shortages. When it comes to supply chain disruptions — particularly as they relate to microchips and next-generation technology — it's a matter of national security.

The root of the issue is that the auto industry — among others — is over-reliant on microchip production from one part of the world. Governments around the globe, having experienced the complications of the COVID-19 pandemic, particularly as they relate to personal protective equipment manufacturing and distribution, are committed to avoiding these bottlenecks in the future when it comes to technological products.

Francois-Philippe Champagne, Canada's minister of innovation science and industry, believes some of these issues will be addressed with investments for onshoring or near-shoring of key products.

"I think we are going from global to regional. And I can tell you, from a government perspective, we are putting more emphasis on [supply chain] resiliency than [supply chain] efficiency," Champagne said during a panel discussion hosted as part of Michelin's Movin'On summit. "That is true of Canada, but I can tell you it is true of the G7, it is true in the Five Eyes, it is true between Canada and North America and our U.S. friends.

"And you will see a number of investments to be more resilient when it comes to microchips, when it comes to batteries, when it comes to biomanufacturing," he said. "'Never again' is what we are saying as a government. 'Never again will we be in the same position.'"

Champagne expects the kinds of products considered vital for security to be redefined. Medical, pharmaceutical and PPE supplies still will be prioritized, he said, but technological essentials such as microchips, lithium-ion batteries and 5G components will be emphasized as well.

Governments aren't alone in assessing the resiliency of supply chains. If the COVID-19 pandemic has proven anything, it's just how fragile supply chains are. This has led companies around the world to take hard looks at the way they transport goods and find solutions to address weaknesses, according to Marie-Christine Lombard, chairman and CEO of the France-based shipping and logistics management firm Geodis.

Traditionally, she said, manufacturers turned to "low-labor-cost countries because companies were enjoying quite optimal and cheap transportation possibilities, and this was a win-win for all the manufacturing companies. Now, [there is a] sudden realization that the dependency on suppliers and possible disruptions — such as a huge sanitary crisis — are putting so much risk into the manufacturing cycle and distribution of products, essential or not. You can block an economy like this, actually."

"Companies now are really risk-assessing the supply chains to make them more resilient and, therefore, are looking for partners to make the supply chain more resilient," she said.

Near-shoring may be part of the solution, but it's also a tricky prospect. In the months since the COVID-19 pandemic took root, disrupting supply chains with inventory shortages, unprecedented demands and logjammed ports, there has been lots of talk about near-shoring production — or, at the very least — inventory.

Otto Schacht, executive vice president of global sea logistics for Kuehne + Nagel International AG, a Swiss logistics management company, said there is much to consider when rethinking supply chains. In many cases, production near-shoring may not be a likely solution.

"I think the subject of near-shoring is valid for certain products. When we talk vaccines, when we talk certain high-tech products, I would agree," Schacht said during the panel discussion. "The mass products that are being moved around the world in huge volumes when I look at maritime trade — whether we move sofas from China, whether we move lamps or the Nike or the Adidas shoes from Indonesia — I do not see these huge volumes. The shoe manufacturing [is not] moving back to North America or to Europe; we just don't have the labor for this. There is a huge labor shortage already today in the North American market to mass produce."

Champagne agreed. In most cases, bringing production to — or back to — North America and Europe is unlikely, considering the costs of production, shipping and labor. But he pointed to one underlying trend that could help to guide some of these decisions moving forward: the greening of the supply chain.

After all, he said, managing climate change is another part of the national security equation.

"We are at the tipping point in humanity where we all need to do something," Champagne said.

Likewise, consumers are laser-focused on sustainable products. This awareness ranges from where and how the products are manufactured and shipped to the end life of the products themselves.

Lombard said this awareness is putting increased pressure on companies that are adjusting their operations accordingly and then seeking to improve the sustainability of the supply chains.

"Consumers are really asking for [sustainability] and this is why our clients are asking us to supply zero-emissions supply chains," Lombard said, noting that the luxury goods markets are particularly impacted by this awareness.

Building more sustainable supply chains is necessary, she said, not just because consumers demand it, but because it's imperative for the planet.

"At the end of the day, we don't have a choice if we want to save the planet," Lombard said. "It's a matter of realizing what it is at stake at the end of the day. And what is at stake is our livelihood on the planet. I think a lot more people are conscious of that."