There are a lot of hard-headed realists in the procurement and supply chain profession. And right now—with leaders of both political parties, economic think tanks, institutional investors, and influential columnists saying we must de-globalize and reshore our supply chains or face economic, environmental, and geopolitical catastrophes—the realists’ perspectives aren’t especially popular.
Yet, voices of realism are vitally important as corporations redesign their post-COVID supply networks. One of those voices is Hitendra Chaturvedi, professor of practice in supply chain management at Arizona State University’s W. P. Carey School of Business. In business news articles Chaturvedi has questioned the viability of broad-scale reshoring and warned that supply chain resiliency will likely take a back seat once the pandemic fades from memory.
But in his 2021 book “Sense and Sustainability,” Chaturvedi shows he’s an idealist as well as a realist. The book is a wide-ranging tour of efforts to push sustainability and circularity (reusing rather than discarding used products and materials) and the obstacles to these endeavors, from corruption and corporate greenwashing to the lack of standards and measurement protocols. It’s full of lively anecdotes, including many from his experience building a 3,000-employee appliance refurbishing company in his native India.
In this Q&A, Chaturvedi shares his views on rebuilding American manufacturing, reshoring, nearshoring, and other topics of the moment in supply chains.
Resilinc: What’s the current status of reshoring manufacturing?
Chaturvedi: So far this year, Ohio, Arizona and Tennessee have seen the most job announcements associated with reshoring. Texas has dropped from 2nd in 2020 to 13th in 2021. South Carolina is 11th after years as number one.
According to the data, the most jobs are coming from Korea, predominantly by way of foreign direct investment in EV battery manufacturing. Other industries seeing the most reshoring include transportation equipment; computers and electronic products; electrical equipment, appliances and components; chemicals; plastic and rubber products; wood and paper products; apparel and textiles; fabricated metal products; and machinery.
China ranks number one as the country from which companies are reshoring, followed by Mexico, Canada, India, and Japan. The top countries that are investing in manufacturing sites in the U.S. are: Germany, China, Japan, Canada, and Korea.
Resilinc: So, there’s significant investment and movement of jobs “back home.” That’s good news. What obstacles do you see on the horizon for this trend to continue?
Chaturvedi: Our manufacturing costs are about 15% higher than Germany’s and 40% higher than China’s. That is an underlying problem that we have to address. Moreover, we need to bring high-skill manufacturing jobs back home rather than low-skill jobs because we will not be able to compete with low wage countries. Finally, businesses are driven by profits so, as the pandemic subsides, they will search for low-cost countries. Profits will win over patriotism.
Resilinc: Regarding workforce shortages, what do you think about giving more visas to foreign workers to fill these needs?
Chaturvedi: The U.S. typically gives visas to skilled foreigners who can fill skills gap. The less skilled you are, the longer the visa process. So, we would likely not be able to solve our immediate labor shortages in this way. Moreover, immigration can seem to depress wages, although research has shown that low-wage foreign workers have little impact on native-born wages and employment.
In a normal year, we welcome about a million legal immigrants, roughly three-quarters of whom participate in our labor force. This has been disrupted during the pandemic, and some of the labor shortage has been caused by this human supply chain disruption.
Industries that are facing the biggest labor shortages are construction, transportation, warehousing, hospitality and local service businesses like salons and dry cleaners—all staffed by a significant proportion of immigrants.
In my opinion, we have a great controlled system of worker and student visas that was complementing our workforce by filling in the skill gaps. We should reinvigorate this human supply chain and prime our student and worker visas and green cards. We should increase the number of H2 visas to address seasonal labor issues.
Resilinc: It looks like the U.S. will see major growth in semiconductor manufacturing thanks to the CHIPS Act and investments by major chip makers. What’s your perspective on this?
Chaturvedi: I’m particularly concerned that the current push to reshore semiconductor manufacturing will be undermined in the future by the lower costs of offshore manufacturers. Right now, there are shortages of chips. But when the industry again has a global surplus, the high-cost U.S. chips will not be competitive in the low-cost markets.
Resilinc: Much of the current drive to reshore and nearshore manufacturing is driven by concerns about China—concerns arising from shortages of goods from China and geopolitical concerns. How do you see this situation evolving?
Chaturvedi: A major question is: What will happen when China is firing on all cylinders, shipping cost come down and COVID is receding in our rear-view mirror. As a consumer, let us say, you are given a choice between two identical iPhones—one that was made in China with Just-in-Time inventory management, and the second made in the U.S., by a manufacturer that had mitigated inventory risk by carrying safety stocks, leading to a final cost that is 40% higher than the Chinese-made iPhone. Obviously, most will choose the cheaper iPhone.
This reality leads me to question how serious American corporations really are about reshoring. If they emphasize it for marketing and PR purposes but really don’t shift their supply chains in a major way, is that the same as greenwashing? Should we call it “shorewashing”? I guess the jury is still out, but things will become clearer when China and other Asian producer countries return to their pre-2019 levels of economic output.
Resilinc: Okay, so what should U.S. OEMs and policymakers be doing to restore U.S. jobs and make supply chains more resilient?
Chaturvedi: We should look at manufacturing jobs strategically to identify sectors that are most important to onshore, that provide good paying jobs. We should also look strategically at nearshoring to Latin America and Canada. Manufacturing in Mexico today is at least 20% cheaper than China.
China has some major demographic challenges that will make nearshoring more advantageous and important—most significantly an aging workforce. This presents a huge opportunity for young and rising middle-class workers in Latin America and Mexico in particular, who historically have found themselves constrained by a lack of high-wage and productive employment.
Resilinc: Let’s shift to supply chain sustainability—a topic of major importance since OEMs’ greenhouse gas emissions are produced in supply chains. In your book, you recount a conversation with a senior exec at a U.S. plastics manufacturer who said that his company would require its supplier to report sustainability metrics on a scorecard. What was your response?
Chaturvedi: When a supplier or vendor hears from a large customer that the customer wants them to operate more sustainability—but offers no incentive—what will it do? In all likelihood, it will fill out the “sustainability scorecards” with nice-sounding, made-up answers. They’ll find some way to fake it, or push a certain unwanted, polluting activity down their supply chain so it is not on the large customer’s radar. They’ll do whatever it takes to keep that profitable business relationship but will change nothing about their recycling or sustainability processes.
Resilinc: What do you recommend OEMs do instead?
Chaturvedi: ESG and sustainability cannot be divorced from business. Some of us are old enough to remember when “Quality” was a new thing and taught as a separate course in colleges and universities. Now we have quality integrated into everything we do, and it is the lowest bar that companies need to become competitive.
We need to make ESG and Sustainability the same. It needs to be integrated with business. To that end I propose we kill the word sustainability and ESG from our vocabulary and redesign our business processes to make them efficient and sustainable. Sustainability and ESG terms should be synonymous with profitability. Moreover, put ESG and Sustainability KPIs in the CEO’s agenda to drive change from the top down. Millennials and Gen Zs are already voting for environmentally responsible companies through their pockets, showing companies the way that profits equal sustainability. Companies like Wal-Mart and Tesco are pushing ESG because they realize that this is profitable. Many others will follow soon; the rest will perish.