PREPARING YOUR SUPPLY CHAIN FOR THE COMING WAR WITH CHINA PART TWO: TOOLS TO ASSESS YOUR RISK
Anthony G. Tarantino, PhD
Industry 4.0, Supply Chain, and Continuous Improvement SME and Consultant
CONTINUOUS IMPROVEMENT WITH TONY
NEWSLETTER, VOLUME 18, OCTOBER 26, 2024
Anthony Tarantino, PhD
The underlying principal behind Globalization is the progressive integration of economies and societies. It is typically driven by new economic relationships, new technologies, and the national and international policies of governments, corporations, labor unions, and international organizations.[1] While economists have argued the economic and social pros and cons of globalization for years, most agree that it has led to lower commodity prices but with increased risk from extended and fragile supply chains. Pursuing the lowest labor cost is a process known as global labor arbitrage.
China became a major beneficiary of globalization and global labor arbitrage for many years. China has continued to benefit from globalization even as it increased its military spending over the last 20 years. In 2004, China's military spending totaled $35 billion. By 2022, it had risen to about $29 billion, an increase of about 730% over the 20-year period. By comparison, U.S. military spending in 2004 was approximately $487 billion. By 2022, it had risen to $876 billion, an 80% increase. [2]
While the benefits of globalization are real, a commonsense rule to apply to globalization would be to avoid doing business with our enemies. The definition of enemies is simple. Your enemy is anyone who has their nuclear weapons pointed in your direction. The history of trade with Japan after the Pearl Harbor attack is illustrative. One of the key measures was the freezing of all Japanese assets in the United States, which effectively halted any trade between the two countries.[3]
Here are some simple-to-deploy tools and techniques to mitigate your risk in dealing with China.
Preferred & Strategic Supplier Programs
Becoming a strategic partner with your key suppliers is a good way to improve supply chain resiliency. The process includes capturing the performance history for suppliers around their on-time and quality performance. Identifying and rewarding your best critical suppliers out of the thousands in a supplier master has many advantages. The process also flags bad suppliers who should be barred from further business or put on probation.? With the strength of strategic partnerships, the next step is to work with key suppliers to assess your multi-tier supply chain visibility.
Multi-Tier Supply Chain Visibility
While there are software tools to support multiple levels of supply chain visibility, the process can be done manually by sending surveys to key suppliers requesting the supplier names and items purchased from their Chinese suppliers. With this information, it makes sense to create a supply chain heat map to prioritize efforts to develop alternative suppliers.
Supply Chain Heat Maps
Supply Chain Heat Maps rates the risk for an organization, its suppliers and critical purchased parts. The riskiest suppliers or components are painted red in the upper right-hand corner. Several heat map software tools are available from simple Excel-based templates to sophisticated cloud-based tools.
BOM Grading Tools
Bill-of-material or BOM grading tool evaluates critical items on bills of materials as to their risk profile. Some of the risk factors include items that are sole-sourced, long lead time, end of life, highly engineered, and environmental factors. These tools are only as good as the accuracy of supplier and component? performance data. The stronger the supplier partnership, the better the chances for accurate data. There are proven software tools to grade BOMs. This is an example of one of these tools.
Please provide your thoughts and suggestions on this critical issue.
Three Predictions
US assets will be frozen by the Chinese government if the conflict over Taiwan becomes a broader war. The US can be expected to respond in kind.
The lessons learned from the Covid-19 pandemic will apply with a Chinese American conflict.? Even short lead-time, off-the-shelf, commodities will face shortages – recall the shortages for toilet paper and cotton swabs.
领英推荐
According to the Hurun China Rich List, the number of billionaires in China has decreased by 36% since 2021, from 1,185 in 2021 to 753 in 2024.[4] This trend can be expected to continue as the Chinese government increases the punishment of entrepreneurial capitalists, the same people responsible for much of the unprecedented economic growth. ?
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Cheers, Tony
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Anthony Tarantino, PhD
Six Sigma Master Black Belt, CPM (ISM), CPIM (APICS)
Adjunct Professor, Santa Clara University – Smart Mfg. & Industry 4.0
Author of Wiley's Smart Manufacturing, the Lean Six Sigma Way Amazon Links
Senior Advisor to IM Republic, ?https://imrepublic.com
?(562) 818-3275?? ?[email protected] ??Anthony Tarantino
?Notes
[1] The Social Dimensions of Globalization, https://webapps.ilo.org/public/english/wcsdg/globali/globali.htm
[2] Fenella McGerty, ISS https://www.iiss.org/online-analysis/military-balance/2024/05/asian-defence-spending-grows-chinas-grows-more/?form=MG0AV3
[3] History.com , https://www.history.com/this-day-in-history/united-states-freezes-japanese-assets?form=MG0AV3
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