MFG.com Blog

Protectionism and Supply Chain Risk

Submitted on

Small- and medium-sized manufacturers (SMMs) - and many associations and groups that represent them - have been explaining for years that outsourcing and the migration of the U.S. manufacturing to low-cost countries would have unforeseen costs. And it seems that many OEMs, manufacturers and the government are recognizing the total landed costs that come from those extended supply chains and a dwindling SMM base.

But could protectionism via "Buy American" pose the same sorts of long-term risks as running blindly toward outsourcing has? We're a part of a global manufacturing ecosystem - like it or not. And being enabled to participate and compete in it is a whole lot better than regressing and letting the world pass the U.S. by.

A recent study conducted by The Economist's Intelligence Unit titled "Managing Supply-Chain Risk for Reward" is one of many that show executives are reconsidering or are about to revisit the sourcing strategies in their organizations. From the study:

It is therefore surprising to discover that many companies continue to underestimate the risks of supply-chain failure. As the economic downturn has shown, the rules of effective supply-chain management can change—if labour disputes, IP protection or utility failure were concerns for companies in the past, they have been well and truly replaced by factors such as currency and energy price fluctuations, doubts about customer confidence, supplier insolvency and protectionism.

The charts from the Economist survey below show the disruptions global supply chain executives have experienced in 2009, and what these companies are doing to avoid further disruptions:

Supply Chain Disruptions - 2009

Supply Chain Disruptions - 2009

Actions Taken to Avoid Supply Chain Risks - 2009

Actions Taken to Avoid Supply Chain Risks - 2009 & 2010

These manufacturers are adjusting their strategies in part because of the strains to extended supply chains brought on by unexpected events - like a worldwide recession, for example.

A few weeks ago, the U.S. Chamber of Commerce sent a letter to U.S. legislative leadership, pointing out that "Buy American" can have unforeseen consequences - like stunting job growth and potential trade war(s). The Chamber also conducted a study earlier in 2009 that presented those costs in detail ("Trade Action – or Inaction: The Cost for American Workers and Companies").

From the Chamber's letter:

While the "Buy American" sentiment may sound appealing, the reality is quite different. Before embarking on imposing new restrictive provisions, it is vital to recognize that the United States already imposes significant "Buy American" requirements at the federal level that restrict access to our procurement market for countries that have not opened their procurement markets to our exporters, in accordance with the multilateral Government Procurement Agreement. There is no need to expand "Buy American" provisions and doing so will be highly counterproductive particularly for industry sectors hardest hit by the economic crisis.

As always, the truth likely lands smack in the middle. The danger - as we well know - is a rush to judgment and actions without considering what we'll actually pay for those decisions. SMMs need the structure and wherewithal to compete effectively on the global stage, to take advantage of emerging markets. And THAT'S why a cohesive manufacturing policy is so critical, and why we need to get it right the first time.

Can you make this part?

MFG.com Newsletter

Do you have Questions? Call MFG.com

Join As A Buyer

Join As A Supplier