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Management

What the politicization of supply chains means for managers

Published 20 August 2021 in Management • 3 min read

Without clear economic incentives, companies are unlikely to invest in supply chain resiliency; governments looking to address inflation and foreign policy should take note, says Richard Markoff 

 

Supply chain is mainstream

It’s been a dizzying 18 months for supply chain management as it became part of the global conversation. From COVID-induced shortages to the Suez Canal blockage, via semiconductor bottlenecks and container imbalances to saturated ports, supply chain management has even made the front page of the New York Times. 

But recent events have taken pushed this issue one step further. Supply chain is moving from the public sphere to the public policy sphere, where it sits at the heart of several current political and economic flashpoints. 

The Ever Given, the container ship that blocked the suez canal for 6 days
The Ever Given, the container ship that blocked the suez canal for 6 days

Supply chain inflation

As inflation rises in the US, some economists and politicians in there have  concerned themselves with what it might mean for medium-term economic prospects. Other economists, however, have been making the point that any observed inflation increase is largely transitory, and the blame lies with supply chains. One element to this reasoning is that the disturbances in global shipping have led to increased container shipping costs, with some estimates pegging the impact at 0.5% of the 5.4% annual US inflation 

Another cornerstone of this argument is the underlying inflation drivers. These included one-time supply issues in items such as used car prices, which have exploded in part because the semiconductor shortage has hampered new car manufacturing supply, and lumber, where demand spiked due to pandemic-fueled improvement projects. 

The result is that supply chain capabilities are now, fairly or not, at the heart of critical policy decisions regarding interest rates and money supply that central banks must balance. 

Any inflation increase observed is largely transitory, and in fact supply chains are to blame

Supply chain as foreign policy

The semiconductor manufacturing bottlenecks, with the myriad resulting multi-industry downstream shortages, have driven global powers to rethink their supply chains. They are now viewed as resources to protect against perceived threats, even as foreign policy tools.  

China recently announced its intention to increase its domestically sourced semiconductor consumption from about 33% today to 70% by 2025, enticing venture investment to fuel the growth. The move is in response to legislation passed by the US Senate authorizing $52 billion in incentives for US chip manufacturing, amid efforts to have allies cease shipment of chip-manufacturing equipment to China. And it may not be the end of such measures to shape the supply chain, with tax credits and other tools under discussion. 

Taking things a step further, a bipartisan bill was put forward this week to “help to identify and address deficiencies in US supply chains.” Other players are scrambling not to be left out. Taiwan, the European Union and Singapore are also providing financial incentives for increasing chip capacity. 

Supply chain as a proxy foreign policy tool is not limited to semiconductors. Canada, the European Union and India have all announced electric vehicle battery subsidies for earlier stage ventures, for example. 

Supply chain management implications

These developments are critical to the approach supply chain managers take to their networks moving forward. We have argued that without clear incentives, companies are unlikely to invest in supply chain resiliency if it means lower gross margins. If the prominence of supply chain management in the public policy sphere leads to incentives large enough to influence internal company economic equations, a rebalancing from global to regional or domestic footprints might begin, at least in certain high-profile industries. 

Authors

Richard Markoff

Richard Markoff

Supply chain researcher, consultant, coach and lecturer

Richard Markoff is a supply chain researcher, consultant, coach and lecturer. He has worked in supply chain for L’Oréal for 22 years, in Canada, the US and France, spanning the entire value chain from manufacturing to customer collaboration. He is also co-founder and Operating Partner of the Venture Capital firm Innovobot. 

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