The coronavirus exposes the fragility of an economy built on outsourcing and just-in-time inventory.
When President Donald Trump invoked the Defense Production Act yesterday, it was telling in two respects. First, it showed that the full force of the federal government will be brought to bear in the manufacturing of vital medical supplies. Second, it underlined what has already become clear: The way our modern supply chain is built is incredibly fragile.
For Doug Watkins, that was obvious several weeks ago, when he realized that his hospital didn’t have enough surgical gowns. Watkins, who oversees the supply chain at the Medical University of South Carolina health system, learned in February that one of the Chinese gown manufacturers that supplies his hospital had a contamination issue with its products.
The problem was unrelated to the novel coronavirus, and in any other time, it would have been a small hiccup on the way to finding replacement gowns. But then, as the virus surged, so did demand for gowns, both in and out of China, leaving Watkins and his colleagues scrambling. “This is probably as bad as I’ve seen it,” he said in a phone interview.
We’ve built a global supply chain that runs on outsourcing and thin margins, and the coronavirus has exposed just how delicate it is. “I guess we’ve done a good enough job within the health-care supply chain of getting pricing down to the point that the vendors don’t have a lot of extra margin or slack to play with,” Watkins said. So when demand spikes, everyone feels it.
