US National Manufacturing Guard: Building Resilient US Manufacturing Base


There exists inevitable dynamic tension between companies seeking international trade—something as old as human civilization—and the governments of nation-states charged with protecting its citizenry. Note that I am an American citizen on the one side of things, yet I have dealt in international business and was trained in international relations at the university, so I embody that tension. Not to mention that this blog has quite an international audience. One of many, many reasons I don’t do politics.

Despite continued centralization of government in the United States, it does remain a federation of states in many aspects. Alone among industrialized nations, the US lacks a coherent manufacturing strategy. As supply chain problems caused by the COVID-19 crisis (cited by the Manufacturing Institutes below) along with the increasingly hostile trade disputes with China show, the country’s manufacturing base has perhaps become too dependent upon international supply chains. 

An organization currently forming composed of many of the US Manufacturing Institutes proposes a “Manufacturing Guard.” From its white paper we learn the background: The current COVID-19 crisis has challenged America’s ability to respond rapidly to a threat and exposed vulnerabilities that must be addressed to ensure America’s national and economic security, and public health, in the face of threats such as pandemics, war, and the rise of more technologically advanced adversaries. As we recover from the current crisis, and prepare for the possibility of the next, it is well past time to think about our security and competitiveness as linked to our manufacturing, supply chain, and workforce capabilities. 

The 2018 National Defense Strategy calls for increased and sustained investment, innovation, and discipline from all aspects of America’s industrial base to guarantee the nation’s ability to compete in an increasingly complex security environment. 

To restore domestic control, resilience, and flexibility, a multi- faceted national program must be developed to map the current, architect the new, and implement an optimized manufacturing base that affords the U.S. strategic control over critical supply chains. This undertaking will require a systems-level reimagining of manufacturing and talent development with a focus on optimizing what already exists in the U.S. domestic asset base and flexibly adding distributed capacity for basic feed stocks, intermediates, and finished products that are currently only manufactured overseas. The Manufacturing USA institutes, which are each tasked with establishing and growing ecosystems around specific technology areas, are uniquely positioned to answer the call and build a more resilient U.S. manufacturing base to better prepare for the next crisis. To address these needs, we propose the following: 

I) Create a national Manufacturing Guard: We make the analogy to the National Guard’s readiness to defend our country to propose a national Manufacturing Guard. This group would be comprised of leading corporate experts in manufacturing and production, and they would train annually for agile and effective response during a crisis to mitigate scenarios that threaten supply chains and impede immediate availability and access to necessary products across the country.

II) Create a national, real-time Supply Chain Data Exchange: The Supply Chain Data Exchange infrastructure would enable a secure, end-to-end data backbone for real time visibility and the mitigation tools necessary to support the resilient production of critical products needed during Covid-19 and future supply chain disruptions. 

III) Create the Technology Corps: The Technology Corps will ensure Americans can be rapidly educated on emerging advanced manufacturing technologies. The Technology Corps will establish a workforce pipeline to respond to national security needs and will be a pipeline into the national Manufacturing Guard, providing individuals who will have worked with industry leaders and understand the importance of keeping our manufacturing capabilities up to date and safe. 

IV) Form a Resilient Manufacturing Task Force and a Resilient Manufacturing Advisory Council: A Resilient Manufacturing Task Force is required to convene and develop a plan to create the national Manufacturing Guard, the Supply Chain Data Exchange, and the Technology Corps. The Task Force will also be able to begin mapping critical gaps in the supply chains across sectors and identify opportunities to refine current, and design new, technologies for an optimized system design.

Your Call to Action

We are offering two identical, online events to share these insights and strategies with the national manufacturing ecosystem. The first was September 29. You can still register for the second one as described below.

Webinar #2

  • Thursday, October 1, 2020
  • 2:00pm Eastern / 11:00am Pacific
  • Duration: 30 minutes
  • Speakers:
    • John Dyck, CEO, CESMII
    • Chandra Brown, CEO, MxD
    • Kelvin Lee, CEO, NIIMBL (moderator)

Register Online

Agility is the Key in IIoT

KC Liu, founder and CEO of Advantech, the Taiwan-based electronics company, has always been a sort of philosopher/businessperson. Over the 20 years or so that I’ve followed the company several books have added to my library thanks to him. The company continues to build on its base of Adam I/O modules and industrial computers. But Liu continues to conceive new strategies and technology directions to keep the company fresh and interesting.

On Tuesday, Sept. 22, yes, the first day of autumn, I sat in on a global press conference at 6 am my time followed by a few hours of presentations. And, once again, the companies that provide the infrastructure for virtual conferences and the companies that use them deserve commendation for well-planned and executed events.

Data, cloud, app marketplace, ecosystem, partners, Platform-as-a-Service were key concepts as executives explained where Advantech plays in the IoT market—industrial, smart cities, and more.

“Agile innovation in the area of the Industrial Internet of Things (IIoT) will be the key in driving forward digital transformation in industrial applications into 2021 and beyond,” said Advantech IIoT President, Linda Tsai, to more than 2,000 delegates at the company’s first ever global IIoT Virtual Summit, entitled ‘Connecting Industrial IoT Innovation’.

Ms. Tsai explained: “Figures from IDC suggest that by 2025, there will be 41.6 billion IoT devices in use worldwide, generating 79.4 zettabytes of data. Connected devices will pervade every aspect of our personal and business lives, and a complex mix of technology and infrastructure will be more crucial than ever to harnessing the power of the data generated by these devices. 

“As a leader in embedded computer systems for industrial applications, Advantech is leading the way in developing more powerful edge computing solutions which are compatible with all types of IIoT devices as well as data centers and cloud providers and can aggregate these vast quantities of data, allowing users to optimize operational effectiveness in their facilities.”

Much of Advantech’s pioneering work in this area centers on its strategy of co-creation: collaborating closely with systems integrators and developers to create edge solution-ready platforms (Edge SRP’s) or IApps (Industrial Applications) to make digital transformation as rapid and simple as possible. Advantech can support optimization in areas from iFactory to industrial equipment manufacturing (IEM), industrial AI, smart automation, transportation, energy & environment and iLogistics.

Ms Tsai went on to identify six key technology trends for 2021: digital transformation, 5G, decoupling, device-to-cloud digitalisation, empowered edge and artificial intelligence (AI).

“According to the GSMA Mobile Economy 2019 Report, 5G will contribute more than US$2 trillion to the global economy up to 2035, of which 35 per cent will go to the manufacturing and utilities sectors. Meanwhile, research from MarketsandMarkets estimates the value of AI in the manufacturing at US$17.2 billion by 2025.

“Advantech has developed an extensive portfolio of AI platforms including edge AI systems, sensors and inference servers, as well as deep learning training servers, to assist customers in exploiting the potential of AI. Meanwhile, in the area of device-to-cloud, we are again at the forefront of innovation, with solutions including private cloud solutions, industrial APP, edge intelligence software and cross-platform middleware – all specifically developed to combining optimised computing with robust and reliable performance in even the most demanding environments.”

“There is no getting away from the fact that digital transformation will impact every manufacturer in the world in the years to come, and harnessing the power of data will be critical to competitiveness as we move from Industry 4.0 and towards Industry 5.0. Our global Summit has brought together partners from across the world to find the best ways to collaborate and exploit the power of new and emerging technologies, to optimise efficiency, performance and commercial success.”

Jash Bansidhar, managing director of Advantech Europe, added: ““The macro strategy of driving Industrial IoT development through the adoption of AI, 5G and edge computing is central to the further adoption and exploitation of IoT technologies. Our mission continues to be to work with ecosystem partners to deliver sustainable success in the post-pandemic era.”

GeoTechnology and Manufacturing

I believe that trade has always been “international” in the sense of trading a commodity I have surplus for something I need that someone else has, who could also use my surplus. You can look at the Hebrew Bible for examples. Or documents from China of ancient times. I’ve heard stories of the AnasazisZ¸Z tribe that live for quite some time in the New Mexico/Colorado area.

Often, though, I’ve wondered about trade versus national security. I once had a customer that built tanks for the Army—the M1 Abrams. Always fighting the last war, the Army had them painting all the tanks camouflage. I quoted a robotic system to replace and update that painting line. Then came Desert Storm. The next day they were painting everything “desert sand” and didn’t need the robots. Oh, well.

But I’d think about how our financial geniuses had us moving manufacturing overseas. And I’d wonder, what happens in the next war? If we go to war with the country where our manufacturing moved to, we’d be screwed. What if we built those tanks in another country?

Or look at companies in our industrial technology space like, say, Rockwell Automation who has long ago moved its controller development and manufacturing to Asia. So much of that work is being done in Asia that they moved a Senior VP to Singapore for a while.

Life is full of delicate balances. How to balance the benefits of international trade and national security. We are living through one swing of that pendulum right now. Someday it will swing a different way.

This line of thinking began with an editorial by Gideon Lichfield, editor in chief of MIT Technology Review, who introduced a recent issue of TR:

In the last few decades, the received wisdom among global elites has been that technology tends to make the world flatter, smaller, more open, and more equal. This now seems increasingly false, or at least simplistic. Countries are vying for dominance in technologies that could give them a strategic advantage: communications, energy, AI, surveillance, agricultural tech, cybersecurity, military tech…and now, amidst a global pandemic, medicine and manufacturing. The urge for nations to amass technological prowess and use it as an instrument of geopolitical power is what we mean by technonationalism. The thesis of this issue is that the post-Cold War order was already splintering, and covid-19 is finishing the job.

The biggest driving force in this trend is China’s rise as a tech superpower and the US’s consequent belligerence as its supremacy comes under threat.

We all work in this environment. As we participate in decisions, we have to decide at what point are we an international company (which almost all are) and at what point are we a national company?

It’s complex, but we have to make our way through the complexity to do what’s best for us all.

GeoTechnology Games

I believe that trade has always been “international” in the sense of trading a commodity I have surplus for something I need that someone else has, who could also use my surplus. You can look at the Hebrew Bible for examples. Or documents from China of ancient times. I’ve heard stories of the Anastasi tribe that live for quite some time in the New Mexico/Colorado area.

Often, though, I’ve wondered about trade versus national security. I once had a customer that built tanks for the Army—the M1 Abrams. Always fighting the last war, the Army had them painting all the tanks camouflage. I quoted a robotic system to replace and update that painting line. Then came Desert Storm. The next day they were painting everything “desert sand” and didn’t need the robots. Oh, well.

But I’d think about how our financial geniuses had us moving manufacturing overseas. And I’d wonder, what happens in the next war? If we go to war with the country where our manufacturing moved to, we’d be screwed.

Or look at companies in our industrial technology space like, say, Rockwell Automation who has long ago moved its controller development and manufacturing to Asia. So much of that work is being done in Asia that they moved a Senior VP to Singapore for a while.

Life is full of delicate balances. How to balance the benefits of international trade and national security. We are living through one swing of that pendulum right now. Someday it will swing a different way.

This line of thinking began with an editorial by Gideon Lichfield, editor in chief of MIT Technology Review, who introduced a recent issue of TR:

In the last few decades, the received wisdom among global elites has been that technology tends to make the world flatter, smaller, more open, and more equal. This now seems increasingly false, or at least simplistic. Countries are vying for dominance in technologies that could give them a strategic advantage: communications, energy, AI, surveillance, agricultural tech, cybersecurity, military tech…and now, amidst a global pandemic, medicine and manufacturing. The urge for nations to amass technological prowess and use it as an instrument of geopolitical power is what we mean by technonationalism. The thesis of this issue is that the post-Cold War order was already splintering, and covid-19 is finishing the job.

The biggest driving force in this trend is China’s rise as a tech superpower and the US’s consequent belligerence as its supremacy comes under threat.

We all work in this environment. As we participate in decisions, we have to decide at what point are we an international company (which almost all are) and at what point are we a national company?

It’s complex, but we have to make our way through the complexity to do what’s best for us all.

OSIsoft Finds Buyer–AVEVA

I knew when OSIsoft brought in VC money a sale was imminent. Sure enough. This morning’s blockbuster announcement proclaimed AVEVA the winner of the battle. $5.0 billion is a nice chunk of change for a software company, but the financials are solid and AVEVA should get a nice reward for its investment.

Rick Bullotta kicked things off this morning with a LinkedIn post “Boom. The value of the TwinThread and Aveva partnership just grew exponentially!” A number of interesting comments ensued.

Many questions involved Schneider Electric, owner of more than 50% of AVEVA. Will that make other industrial suppliers who partner with OSIsoft (Rockwell Automation, Emerson, et. al.) nervous about the neutrality of OSIsoft’s PI databases? At the earlier AVEVA virtual conference this year, Schneider’s CEO took pains to discuss the Schneider-AVEVA relationship and how AVEVA is run as a separate company. Time will tell, of course.

Another comment about the value if AVEVA can create some deep links into the PI historian with its other products. That would be an interesting competitive event.

I think the emerging digitization competition between AVEVA and PTC could be something to watch.

Pat Kennedy, founder and large shareholder of OSIsoft, retains a courtesy (and I’m sure strong advisory) position with the combined company. He also becomes one of the top 5 shareholders in AVEVA. That will make for some interesting board meetings.

Here is the announcement I received this morning:

AVEVA, a global leader in industrial software, and OSIsoft, a global leader in real-time industrial data software and services, have announced an agreement for AVEVA to acquire OSIsoft for $5.0 billion. AVEVA and OSIsoft will combine their complementary product offerings, bringing together industrial software and data management to help customers in industrial and essential organizations accelerate their digital transformational strategies as efficiency, flexibility, sustainability and resilience become increasingly urgent requirements for customers.

OSIsoft’s data management software will complement AVEVA’s comprehensive end-to-end engineering, operations, and performance offerings. Integrating OSIsoft’s PI System into AVEVA’s comprehensive software portfolio will create an integrated data foundation that can drive big data, Cloud and AI-driven insights to create meaningful business outcomes for customers. This combination enables AVEVA to grow and diversify the industries it serves as well as continue to expand its footprint in existing and new markets and geographies.

Together, AVEVA and OSIsoft can provide full-stack solutions that span edge, plant, and enterprise deployment models, strengthening AVEVA’s position as a global leader in industrial software. With a combined 93 years of operating expertise and experience, they share a history of meeting the rapidly changing and evolving needs of their industrial customers, built on foundations of customer centricity and world-class talent. In addition to sharing a complementary solutions portfolio, this transaction further validates AVEVA’s leading position in digitization and IIoT.

OSIsoft’s PI System enables customers to collect, normalize, store, and stream real-time, high-fidelity operational data to applications, analytics, and AI and ML platforms. PI System acts as a single system of record for operations data, designed for massive cloud-enabled scale and data sharing across enterprises, and enables insightful operations decision making. OSIsoft works with over 1,000 of the world’s leading power and utilities companies, 38 of the Global Fortune Top 40 oil and gas companies, all of the Global Fortune Top 10 metals and mining companies, 37 out of 50 of the world’s largest chemical and petrochemical companies and 9 out of 10 of the Global Fortune Top 10 pharmaceutical companies.

Building Stakeholder Value and Improving Sustainability

The complementary product offerings of AVEVA and OSIsoft will allow the combined company to continue to generate significant value for its stakeholders by creating new opportunities for innovation using new and emerging technologies. The two product suites are open and interoperable, and many customers leverage both solution sets today. As a combined entity, AVEVA and OSIsoft can further deliver on their sustainability goals, driving significant benefits and value for their customers. With broader, deeper scale and scope to lead the digital transformation of the industrial sector, the combined company will drive greater efficiencies and sustainability for many diverse essential industries, including consumer packaged goods (CPG), pharmaceutical, water and wastewater, and utilities, creating strengthened product offerings.

Commenting on the agreement, Craig Hayman, CEO of AVEVA, said: “Combining AVEVA and OSIsoft is yet another significant milestone in our journey to achieving the ambitious growth goals that we have set. This will not only help us serve existing customers better but also open the flood gates to new opportunities which will accelerate the delivery of our digitization vision. Data has been enabling organizations to more effectively determine the cause of problems by allowing them to visualize what is happening in different locations, departments and systems.  This agreement will enable our customers to improve business processes as well as eliminate inefficiencies. We are extremely proud to be moving into the next chapter with an even stronger solutions portfolio as well as an ever-increasing and robust customer base which continues to make us leaders in our sector.”

OSIsoft founder and CEO Dr. J. Patrick Kennedy added: “Joining forces with AVEVA enhances and extends our ability to deliver on our key commitments to our customers, partners and employees. Together we will be better able to service the largest digital transformation projects in history, including across industry 4.0+ and IIoT. AVEVA’s interest in OSIsoft is a testament to our talented team, and the extraordinary value of the PI System as the real-time streaming data infrastructure that powers the industrial world. Today’s announcement is the culmination of a thoughtful search for a respected organization that would mesh with our own strong mission- and customer-driven culture.  The next chapter in PI’s fifth decade will be exciting for our employees and customers, and I look forward to my continued involvement in my new role as the largest individual shareholder in the combined company and as Chairman Emeritus to ensure we realize the full benefits of this transaction.”

Low Voltage Drives Market Expected to Recover Slowly From the Covid 19 Slowdown

Blake Griffin, an analyst with Interact Analysis which is one market research firm whose methodology I like, has published a blog post reporting on his latest research into the low voltage drives market. Following a sales slow down this year, different regions of the world will see recovery at differing paces.

He also includes an analysis of the role of LV drives in applications such as predictive maintenance. I’ve been long impressed by the amount of motor, and even machine, performance data that may be gleaned from the sensors built into the typical drive. 

Coronavirus

As a company, Interact Analysis is positioned to model the impact of COVID 19. This is because of the MIO Tracker, which tracks and forecasts manufacturing output levels by country at the industry level. We also have a historical dataset to fall back on which reaches back to the 2009 financial crisis – an event that is comparable to Coronavirus in some key ways, and which has helped us to draw some conclusions about the short, medium and long-term effects of COVID 19 on the drives market.

For 2020, the report shows that a combination of COVID-related factors – such as stay at home orders causing a reduction in manufacturing output and demand, as well as factory closures and furloughed workers – will come together to cause a drop in the drives market of over 10%. However, the drop is not as severe as it was in 2009, and there is light at the end of the tunnel. There are strong prospects for a return to growth in 2021 and drives manufacturers and vendors should make their plans with this in mind.

Growth in the LV drives market sits just above that for the output of the manufacturing industry as a whole. This is a long-term trend and it helps lead to some key future conclusions about the drives market in the post-Corona world. Between 2007 and 2019, the underlying growth rate for LV drives was 3.8%; for the period 2020-2024, the forecast CAGR is significantly higher – at 5.3%. The implication is that the market will recover in a similar manner to how it did during the 2010-2014 period.

In terms of recovery to actual 2019 market levels, this is highly variable according to region. The earliest regions to recover to 2019 levels will be China, South Korea, and India – all of which will do so by 2021, and indeed China has already returned largely to normality. Meanwhile, France, Germany and Italy will not recover until 2024. In the case of Germany, this seems counterintuitive given how widely reported it has been that the country has managed the virus itself very well. The problem for Germany is that it is crippled by its heavy reliance on exports, many of which are to far more badly impacted countries. Of the top ten drives regions covered in the report, the UK stands alone as being the single worst impacted region and, even by 2024, will not have recovered to 2019 levels of drives sales.

The Trend for Low Cost Drives

The research shows that the trend for low cost, reduced functionality drives is becoming an ever more important segment of the market. Such drives tended to be cabinet mounted, to be rated at IP20 or lower, and to offer power ratings of 0.1-3.7 kW. Price points can be exceptionally low, with the most keenly priced products – generally 0.4 kW in Asia – coming in at around the $100 mark. The presence of higher regulations and, increasingly, tariffs, in the EMEA and the Americas is not stopping the growth in the low cost drives segment in these regions.

Hitting such a low price point requires advanced functionality such as encoder support, to be stripped out, although some still have additional plug-in options (e.g. for digital communications). ABB and Yaskawa have had low cost products since the mid-2000s, but the trend is being turbocharged by the rapid emergence of Chinese drives vendors onto the global stage, such as INVT and Inovance. While the high-end OEMs may have little use for low cost LV drives, many others report that they are very keen on such products because they can be bulk bought and easily stored to replace faltering drives as needed – helping to minimize production or machine downtime. Observing the behaviour of established vendors is key to determining just how marked the low cost drives trend will be, and seeing leading companies enter the low cost market such as Siemens (with the V20) or Yaskawa (with the GA500) is instructive.

Other Important Trends – Product Substitution and Predictive Maintenance

Other important trends include an increasing move for product substitutes actually displacing LV drives in certain areas. One of these is electronically commutated motors – or ECMs. ECMs are IP55+ rated brushless DC permanent magnet motors – similar to stepper motors. They are increasingly helping companies achieve energy efficiency objectives in high energy usage applications that do not require the computation capabilities an AC drive offers. Some can now achieve IE5 levels of efficiency, leading to dramatic cost savings. Uptake will be most notable in Europe where energy efficiency regulation is the most stringent.

Finally, a word on predictive maintenance… Drive manufacturers should move away from seeing predictive maintenance as a means of extending the life of only the drive itself. Though this is important, a larger consideration is about how to use the drive as a sensor to harvest useful data on motor health, preventing motor breakdowns on fast-moving production lines. A drive can produce data on motor behavior which cannot be produced by the majority of smart sensors. Namely, drives can produce a profile of the electrical behavior of the motor it is controlling. For example, if a motor is under undue stress, its electrical demands will increase.  If this data is used in conjunction with smart sensors, it allows an additional source of data for triangulation which can improve the accuracy of machine learning algorithms. Predictive maintenance is one of the most important up-and-coming industrial trends. Forward-thinking LV drives manufacturers should act now to ensure they capitalise on this.

Resilience A Priority in Global Supply Chains—McKinsey

I love irony. No sooner had I discussed with a colleague about the time I worked for a couple of McKinsey alums than I received an email promoting a new study undertaken by, you guessed it, McKinsey. Actually the McKinsey Global Institute (MGI). The paper’s authors researched global supply chains very timely in light of the Covid-19 pandemic. The report highlights vulnerabilities in global supply chains and how resilience takes priority, calculating ongoing cost of shocks and prospects for production to shift.

In brief:

  • Industries experience month-long disruptions every 3.7 years on average
  • Companies can expect supply chain disruptions to erase 40 percent of a year’s profits over the course of a decade on average—and extreme events take an even bigger toll
  • Up to a quarter of global trade flows could move to different countries over the next five years if companies restructure their supplier networks and governments take action. But moving supply chains is not the only way to build resilience.

The idea of chasing low-cost labor across the globe while ignoring supply chain risks and costs always seemed goofy to me. For, I didn’t waste my years as the unofficial chief manufacturing cost analyst for a medium-sized manufacturer. But here is some weighty analysis that emphasizes the risks.

The stakes are high, according to Risk, resilience, and rebalancing in global value chains, a new report from the McKinsey Global Institute (MGI). MGI analyzed 23 industry value chains to assess their exposure to specific types of shocks, including pandemics, conflicts, cyberattacks, trade wars, natural disasters, and climate risks. Industries have different exposure to these shocks based on their geographic footprint, factors of production, and other variables.

Based on the frequency and cost of disruptions, MGI scenarios show companies in most industries can expect shocks to erase 45 percent of one year’s EBITDA on average over the course of a decade. A single extreme event could cause even bigger financial losses. On top of this bottom-line impact comes the additional cost of rebuilding damaged physical assets, losing market share to competitors that are able to sustain operations, and significant societal harm such as loss of life, loss of jobs, shortages of critical goods, and damage to communities.

Geographic concentration can often produce supply chain bottlenecks when a shock hits. MGI finds 180 goods that are exported primarily from just one country, worth $135 billion in trade annually. Another issue is that large multinationals can have thousands of suppliers—but most have little visibility beyond the top tier of those tightly interconnected networks.

Will companies restructure their supply chains as part of a flight to safety? Yes and no, the report finds. There is an economic logic behind the way industry value chains have evolved. Given the scale, complexity, and interconnectedness of value chains, they are harder to move than is commonly realized.

MGI estimates that 15 to 25 percent of global goods exports, worth $2.9 trillion to $4.6 trillion annually, could conceivably move to new countries over the next five years. This is based on both economic factors, such as the cost of relocating production, and non-economic factors, such as governments changing policy to promote domestic production of goods deemed essential or important to national economic security.

“The prospect of a significant geographic rebalancing in global supply chains represents a risk for the companies and countries that might lose out—but a potentially significant opportunity for those that manage to capture a share of this production. This could have important consequences for future growth and employment,” says Susan Lund, a partner at the McKinsey Global Institute. “But supply chains involve thousands of independent firms, reflecting specialization, access to consumer markets around the world, substantial sunk costs, and long-standing relationships. Relocating is not a simple task.”

To attracting more production, countries need to develop strong supplier ecosystems, specialized workforce skills, robust infrastructure, and an attractive business environment.

There is more to resilience than changing where goods are made, however. Operational choices and the structure of a company’s supplier network can heighten or lessen vulnerability to disruptions. Common practices such as sourcing from a single supplier, relying on customized inputs with few substitutes, and carrying substantial debt can magnify the financial impact of a shock if they are not calibrated to account for current levels of risk.

Among the steps companies can take are mapping the sub-tiers of their supply chains in detail and connecting them digitally for better transparency; building the capacity to flex production across multiple sites; holding more inventory; and strengthening their balance sheets.

The COVID pandemic is prompting action at a time when cost structures are changing across countries and revolutionary digital technologies are gaining traction in global manufacturing.

“Supply chain shocks are not a new phenomenon, but only a handful of leading companies have really moved to minimize their risk until now,” says Katy George, senior partner and global leader of McKinsey’s operations practice. “That’s largely because of a perception that resilience has to come at the cost of efficiency. But that’s no longer true. Now companies have new tools at their disposal to become more resilient and more productive.”