How We Make Things

The pandemic is highlighting many aspects of our societies that aren’t optimal, to put it mildly. That is such a wide-ranging topic, we could talk about it all day. Today I’ll only look at a narrow slice of it from a business perspective.

We are getting a visceral sense of the saying, “Money isn’t everything.” It’s true that allowing pursuit of maximum profit to take priority has been a major factor driving manufacturing out of wealthy countries that most heavily consume the resulting products. But it is not the only factor. As the Harvard Business Review notes in its article Bringing Manufacturing Back to the U.S. is Easier Said Than Done, many modern products are too complex for a single company to have the ability to make them from start to finish.

There may be other pressures involved, but these two pressures combined are enough to account for much of the change from making things near where they will be sold and used to making them elsewhere and relying heavily on transport to move both components and final products around the world.

This leaves countries vulnerable. With supply chains disrupted worldwide, as consumers we see the result whenever we shop. In stores, we see it in empty sections on shelves. Online, we see it in products that are Unavailable and often have no expected restocking date.

It can affect nearly anything. When our household ran out of fence paint, we noticed it was only available from a smattering of eBay sellers at about six times normal price. Macaroni was missing from every supermarket in town for a couple of months. Other types of pasta were still available, although bargain brands of spaghetti tended to be scarce. (Maybe Britons ate a lot of mac & cheese and spaghetti bolognese in lockdowns?) Stock in particular sizes of screws ran low for a while. Cheap microwave ovens? Forget it, that costs extra now.

From the consumer viewpoint, it looks like the main driver has simply been to drive prices down. But with microwave ovens, we begin to touch on the other factor and we approach the impact on business.

For businesses, the consequences can be more than a mere inconvenience. Honda has paused production at its UK factory due to a transport delay in delivery of parts that it needs. It is not the only company where that has happened. Lean manufacturing and just-in-time supply chains minimize money tied up in inventory and raw materials, but in doing so they sacrifice resilience. Any hiccup in the supply chain brings the factory to a halt.

Britain has only one steel mill (ownership of which was sold to a Chinese firm) that can make substantial quantities of high grade steel for railroad track, bridges, skyscrapers and ships. It has only one significant manufacturer of the type of electrical wire used to make electric motors, and hardly any smaller niche manufacturers. Disruptions in supply of such things from other countries can affect not only for businesses, but also for infrastructure projects and the military. The UK is about to complicate such situations by leaving the European common market at the end of this month, and so far it has no trade deal with Europe to step into.

The UK is not unique in such gaps. Both the UK and USA import a lot of medical supplies to keep costs down. Personal Protective Equipment (PPE) in particular tends to come from China more than from domestic manufacturers. Early in the pandemic, China needed the PPE themselves and couldn’t export as much as the rest of the world wanted to get from them.

The USA moved much of its manufacturing to countries where costs are lower. Its textile industry is far down a decades-long path to disappearance. I don’t mean only the sewing of garments and making of carpets. I also mean the making of yarn and fabric. Call centers, processing of cut timber into board lumber, carmaking, shipbuilding, toys, shoes, building of aircraft… All of these and more have transferred at least a large portion of their activities to other countries.

But when we focus purely on the financial profile, we miss the capability element. Different places have different capabilities. These range from availability of physical resources to geographical suitability to workforce expertise. A factory to make computer processing units and certain other types of electronic “chips” with precision measured in nanometers has to be in a place free of extraneous vibrations. This means it can’t be in a place subject to frequent tremors and it can’t be subject to vibrations from human endeavors such as driving heavy trucks or operating heavy machinery or setting off explosives in a nearby mine. A steel mill needs to be able to get raw materials in huge quantities and have millions of gallons of water constantly available. Many modern products contain technology for which specific workforces in specific countries are highly skilled, and it is not practical to try to duplicate their expertise at every company where their output is needed. It is more practical to ship their output to factories that insert it as components into larger products.

Within the bounds imposed by certain places having specialized capabilities, we should seek a balance about how and where we make things that is less brittle than the way we’ve been going about it.