Supply Chain News Roundup: Geopolitics and Critical Component Supply Chains

The U.S. depends on its allies as well as adversaries for critical components, like pharmaceuticals and rare earth minerals, for products relating to military/defense preparedness as well as for American civilian consumption.

A conflict-driven disruption could upend the supply chains of these inputs — as well as create consequences for the country’s economic well-being and national security, said Kari Heernan, director — state and economic statecraft at Brookings Institution during a recent Brookings webinar.

The moderator of “Securing Critical Supply Chains in an Age of Great Power Rivalry,” she said that understanding what those potential disruptions are and the risks associated with them is an important part of preparing for such situations.

Understanding the products crucial to national security as well as civilian consumption also is critical, said panelist Michael O’Hanlon, the Philip H. Knight chair in defense and strategy and director of research in the foreign policy program at the Brookings Institution.

As a recent example, there has been much concern about ensuring availability of rare earth minerals, many of which come from China, and semiconductors; both are used in military as well as civilian products.

“This got us thinking,” O’Hanlon said. “Where are there other areas in the economy where if, in the time of a crisis or conflict, a foreign adversary … could threaten the basic functioning of society or the economy or put a lot of lives immediately at risk?”

The definition of what a national security industrial supply base is needs to be broadened, he said. At the same time, it’s critical to not make that definition so all-encompassing that it means nothing, he said.

Stephen Brooks, Ph.D., professor of government at Dartmouth University, maintained that when considering manufacturing and national security, it is important to take into account who the manufacturers are.

“We live in an era of globalization, and what really matters is not where things are made, but which firms make them,” he said.

He continued: “Tons and tons of stuff are made in China, and if you look at it that way — geographically — China is very impressive. But if you ask a different question: What do Chinese firms themselves make? (The answer) is much less impressive.”

Brooks, with Ben A. Vagle, co-authored America's Enduring Economic Power Advantage over China, which examines the U.S.’s commercial power as compared to China’s. The book takes a hard look at how conventional wisdom about China is incorrect, among other topics. 

“On the gross domestic product (GDP) front, our estimate is that China's economy is one-third smaller than it’s currently measured to be,” Brooks said during the webinar. “Not 3 percent, but 33 percent, which means that China’s economy is more like half of our size rather than two-thirds.”

On the technological front, there also are misconceptions: Instead of classifying a product as made in China, he said, “you have to ask: Who is contributing at the firm level to that product?” He cited an example of an iPhone he had purchased for US$1,000 a few years ago, saying that the parts and components equaled $400 of the cost.

Of the firms that contributed those components and parts, U.S. firms as a whole made 32 percent, making America the largest contributor, Brooks said. South Korea was second at 25 percent, Japan third at 12 percent, and Taiwan fourth at 7 percent. “At No. 5 — not No. 1 — was China at 3.8 percent, or roughly about $20 worth of value in the iPhone,” he said.

Still, data-wise, the phone is counted as being made in China, Brooks said. Further research in the book shows that when looking at high-tech production, he said, “the U.S., not China, is the world’s manufacturing superpower.”

The Impact of Leadership Turnover

Has your supply chain organization had a recent change in leadership? According to a survey from Gartner, the Stamford, Connecticut-based business and technology insights company, 54 percent of respondents have seen leadership turnover moderately to completely disrupt their supply chain’s ability to operate over the past three years.

A more proactive approach to building “future-ready leaders” is needed, as turnover, along with “the impact of artificial intelligence (AI) and the evolving nature of work, is exposing weaknesses in legacy supply chain leadership development strategies,” a press release about the survey states.

“Effective supply chain leadership has to shift from an overreliance on individual superstars, who our research has found are less collaborative, to leaders who are motivated and equipped to amplify the performance of their teams and organizations,” said Tess Frenzel, senior principal analyst in Gartner’s supply chain practice, in the press release.

Chief supply chain officers (CSCOs) who can adapt their leadership strategies to build such future leaders “and design the roles and development programs to help them succeed will improve supply chain performance, despite the disruption inside and outside of their organizations,” she noted.

Other findings:

• Supply chain leadership positions are continually expanding in responsibility and scope. Nearly 60 percent (59 percent) reported that such positions at their companies require a broad range of skills and competencies.
• About half (49 percent) of respondents rated their organizations’ leadership development programs as effective. This highlights “a need for more dynamic, tailored approaches that keep pace with the rate of technological change.”
• Only 31 percent said work-life balance is part of the path to leadership.
• Only 37 percent said the process for promotions is transparent.

“As AI transforms how individual tasks are completed, and future work trends emphasize new competencies, the ability to collaborate, adapt and lead collectively becomes the greatest differentiator,” the press release states. “CSCOs who break from legacy-driven processes and proactively recalibrate their leadership development strategies around these imperatives will build stronger, more resilient teams prepared to drive performance and innovation in an era of constant disruption.”

Gartner, which surveyed 227 supply chain leaders across industries and regions in June, suggests three ways CSCOs can build stronger future leaders and development programs:

• Develop and reward motivated leaders who amplify team and cross-functional performance.
• Combat role overexpansion. “Overly broad leadership roles erode effectiveness and increase disruption risk,” the press release noted. “Clearly defined, scoped roles aligned to strategic priorities and work-life balance are essential for sustainable performance.”
• Unlock agile leadership development by leveraging new technologies, forming partnerships, among other measures.

Factoring Cost Savings

How does your company measure cost savings? CAPS Research’s Quick Poll Report — Tracking Cost Savings in ERP Systems found that all companies measure price reductions again historical spend, 62 percent include cost avoidance, 49 percent include negotiated cost and 31 percent look at budgeted costs compared to committed cost.

CAPS Research is the Tempe, Arizona-based organization in strategic partnership with Institute for Supply Management^® (ISM^®) and Arizona State University.

(Photo credit: Getty Images/Gsaielli)