Enhancing Economic Resilience Through Remodeled Supply Chains
The Issue
For quite a while and for myriad reasons global supply chains have been becoming progressively that: global. One of the more significant realizations in the wake of the Covid 19 pandemic however was just how exposed domestic supply chains were to a variety of risks that collectively undermine the economic resilience of domestic and global economies. Supply chains too dependent on a single supplier. Supply chains spanning ideological or geopolitical differences were now amplified. Lean practices leaving little margin for disruptions upstream.
In response, some global trade stalwarts like the U.S.[1] and China[2] have acted to reinforce the strength of their domestic supply chains where they are able. Perhaps a harsh reality though is that most governments lack the power or authority to prescribe where private entities source or manufacture their goods and, inevitably, risk is catalyzed in the gap present between each company’s natural tendency to act in its own interest and a government’s responsibility to ensure broad spectrum reliability of its economy.
Inducements
Enter the role of public and public/private partnership funding as a means to driving innovation and initiation of ‘re-homed’ supply chain programs.[3] Consider the case of pharmaceutical manufacturing capability in the wake of the Covid 19 pandemic. As the pandemic was playing out, the medical and scientific communities were iterating quickly to learn which combination of drugs, medical devices, and therapies were most effective for many, many patient profiles. It became obvious relatively early in this process that the supply of, and/or access to, some of the most impactful treatments and devices was insufficient to meet demand. Many countries were learning a tough lesson in just how dependent their populations were on supply chains entirely outside their sphere of material influence in crisis. In response many countries have focused on prioritizing critical infrastructure for reshoring. For example, in September of 2022 the United States announced a series of federally funded initiatives aimed at expanding U.S. domestic biomanufacturing, strengthening supply chains, and ensuring long-term progress in these areas. [4]
We all understand that no single modern economy has the resources, capacity, or will to operate all of their supply chains domestically. And so decisions must be made with respect both to which supply chain(s) are prioritized for domestic self-sustainability, and, for those that aren’t, how to best manage those in a way consistent with the priorities of buttressing economic resilience and reducing probability for disruption.
Friendshoring
/frĕndshôrĭng/
The term, a cousin of “reshoring” and “onshoring” and a sibling to “nearshoring,” is shorthand for the practice of relocating supply chains to countries where the risk of disruption from political chaos is low.
First known as ‘allied shoring’ but now more commonly termed ‘friendshoring’[5], refers to the practice of establishing or re-establishing supply chain relationship(s) with countries aligned with each other’s interests; to partner with allies, other trusted nations, and supply sources that possess a desired level of competence, reach, or reliability. This is the next best option in terms of furthering domestic supply chain resilience. [6]
After all supply chains have been fully identified (i.e. that an administration has developed a comprehensive view of each supply chain contributing to a domestic economy down to a subordinate level of detail where risk of loss or failure is deemed tolerable), prioritizing which supply chains are critical to a government’s priorities and interests is the next step toward increased resilience. It is important to note that these assessments should be dynamic and/or regularly updated as the global technical and geopolitical landscapes evolve. For example, relatively few people before 2020 would have considered personal protective equipment as a national strategic resource.[7]
[1] The White House, “Executive order on America’s supply chains ,” February 24, 2021
[2] Economist, “China’s ‘dual-circulation’ strategy means relying less on foreigners ,” November 5, 2020
[3] Eleftherios Iakovou and Chelsea C. White III, “How to build more secure, resilient, next-gen US supply chains ,” Brookings Tech Stream, December 3, 2020
[4] The White House, “Fact Sheet: The United States Announces New Investments and Resources to Advance President Biden’s National Biotechnology and Biomanufacturing Initiative ,” September 14, 2022
[5] New York Times, ““What is ‘Friendshoring’?” ,” November 18, 2022; January 3, 2023
[6] William R. Hawkins, “Supply chains must adjust to great power competition ,” National Interest, August 1, 2021.
[7] Ge Bai, Tinglong Dai, and Shivaram Rajgopal, “The PPE supply chain is a black box—That needs to change ,” Fortune, July 25, 2020