California is at the epicenter of the U.S. supply chain narrative. Its ports are recovering from a serious challenge with offloading products from a backlog of container ships, and the largest manufacturing community in the nation is learning how to pivot when supply chain disruption occurs. CompanyWeek recently asked CMTC President and CEO Jim Watson to help make sense of California's current manufacturing supply chain.
CompanyWeek: Jim, let's start with the genesis of the supply chain challenge that California is facing. How did we get here in the first place?
Jim Watson: Over the last few years, there were several factors that created a perfect storm.
First, the COVID-19 pandemic caused an exponential increase in demand for durable goods, far exceeding existing capacity to produce and transport products. Second, there was and continues to be a lack of redundancy in current supply chains, limiting the use of alternate suppliers to fill demand.
The outcomes have been port congestion, a scarcity in materials, and rapidly increasing transportation costs. Add an existing workforce shortage exacerbated by COVID in both logistics and manufacturing to the equation, and the result is a disruption that will be with us well into 2022.
CW: In theory, it seems we can mitigate some of the pain if we can make more domestically, if companies can shorten offshore supply chains. Can you give us a realistic assessment of reshoring? What's the mindset of California manufacturers?
JW: The mindset of California manufacturers is quite similar to that of manufacturers across the nation. They would like to shorten their supply chain and have more control over the way it operates. Reshoring offers an opportunity to achieve both.
Reshoring is composed of two things: U.S. manufacturers reshoring production and foreign companies investing in the production of goods in the U.S. Both have picked up substantially.
More offshore companies are investing in the U.S., as foreign direct investment in U.S. manufacturing reached a new record of $1.88 trillion in 2020, according to the National Association of Manufacturers. In 2005, the level was $499.9 billion. Today, the shortage of semiconductor chips is playing a prominent role in rising foreign direct investment in the U.S.
With U.S. manufacturers wanting to shorten their supply chains, there is a growing focus on finding regional or local suppliers that will provide shorter delivery times for products and components and easier participation in the supply chain process.
The Reshoring Initiative, an industry organization, estimates that some 1,800 U.S. firms intend to reshore all or part of their business this year.
The long-term success of reshoring will depend on the answers to a couple of questions. First: how many products can be manufactured in the U.S. at a price point that can compete with foreign producers? Second: as the supply chain challenges subside, will U.S. manufacturers remain committed to streamlining their supply chains? Only time will tell.
CW: Where do you see opportunity? In other words, what industry supply chains are well suited to support a surge in local and regional production?
JW: Although the final 2021 data is not yet available, it is expected that the transportation equipment industry will reshore more jobs than any other sector, followed by the chemicals and electronics sectors. This was also the case in 2020 and 2019.
In 2021, transportation equipment was forecasted to add more than 54,000 reshored or foreign-investment-created jobs. That notably includes electric vehicle battery production. Chemical companies were forecasted to add 37,233 jobs.
While some industries have better opportunities to reshore, manufacturers that have real-time visibility into their supply chains are best suited to support a surge in production. Visibility will mitigate surprises and guesswork when managing a supply chain, improving quality and the on-time delivery of materials.
CW: Can you describe scenarios playing out with CMTC clients?
JW: Right now, many of our clients are experiencing as much as a 4x increase in transportation costs. Others are waiting for components to complete products with no definite delivery time. Many are actively searching for alternative sources for critical materials and exploring ways to bring them closer to home.
In addition, they're investigating the digitalization of the supply chain process to enhance supplier visibility. They are exploring automated ways to capture and manage data, expedite supplier collaborations, and maintain real-time information on orders and deliveries.
CW: We're seeing huge interest in automation-related content from our audience. The race is on to automate. That said, what are some CMTC resources that might help our audience sort through supply-chain disruptions?
JW: CMTC has both virtual and direct assistance: We've modified our website to help connect manufacturers to new, domestic sources of supply in order to access the materials they need to ship their orders and meet their production goals. CMTC also has the expertise to evaluate supply chain efficiencies, agility, and resiliency as well as provide assistance to improve performance with automation or by sourcing new suppliers.