Highlights from our Live Chat with Tom Linton: The State of the Supply Chain
After almost 40 years in procurement, Tom Linton is still excited about the business of supply chains. In an early-April webcast moderated by Resilinc CEO Bindiya Vakil, Linton forecast grand shifts ahead in the technology and geography of supply chains, including a “re-globalization” in which OEMs correct their over-dependence on Asian suppliers.
At the same time, Linton says that precipitous moves by U.S. OEMs to “decouple” from China will be risky and challenging because of the extent of trading in materials and parts in the lower tiers of supply chains. And he doubts that U.S. political leaders will solve the semiconductor shortage due to surging demand and the lead time required to build a new semiconductor fab. “Just because the President holds up a chip and says ‘We’re going to invest in semiconductors,’ this is not like turning on a light.
On the demand side, the “wave that’s coming from Asian countries could consume all the available semiconductors in the world,” said Linton. “It will take years to recover” a balance of semiconductor supply with demand.
Linton, who’s co-authoring a book (his second) on the physics of supply chains, urged supply chain managers to use the turmoil of the pandemic, which played a pivotal role in the semiconductor shortage, to advocate for greater investment in supply chain resiliency. Supply chains are usually an esoteric topic, “but lately the business media is covering our profession constantly,” said Linton. “When you want to explain to senior managers what your challenges are, you can just show them a few recent Wall Street Journal articles.”
The most significant trend that will animate supply chains over the coming decade, in Linton’s view, is re-globalization. “What’s going on is a re-balancing … An imbalance was created, one that leaned too heavily on China and other Asian countries, because sourcing was driven by one priority: reducing labor costs.” This approach cut costs but added time in shipping, which often inflated balance sheets.
Linton predicts that re-globalization will take a decade, and it will be more complex than simple re-shoring (moving foreign production to the U.S.) and near-shoring (moving it closer). “Like the first wave of globalization, this will take time. You can’t just move things from one geography to another.” The intricate dependencies in the lower tiers of supply chains must be mapped and analyzed first. “You have to have visibility deep into multiple levels of your supply chain, and you have to do scenario planning: ‘If this factory went down, what would we do?’”
Another feature of re-globalization will be supply chains increasingly configured to serve OEM’s largest markets. “U.S. companies will make things in China to sell to Chinese companies, Chinese companies will make things in the U.S. to sell to U.S. companies,” said Linton.
Turning his attention to supply chains in Africa, Linton commented on the “tremendous reserves of mineral resources that the world will need over the next 100 years,” and he expressed the hope that the development of supply chains on the continent would improve economic conditions for many. “Globalization lifted 300 million people out of poverty in China,” he said. “Tremendous benefits can come from supply chains.” But major investment in transportation infrastructure in Africa will be needed to realize this promise—and Linton noted that Chinese companies are way ahead of their Western rivals in this regard.
Transportation investments are also needed to accomplish greater trading between North and South America. “There is now no road that connects North America with South America,” he said. “The so-called Pan American Highway is a dirt trail in places. I’d love to see the Biden Administration take up the challenge of building greater north-south connectivity” with highways and railroads.
“Our future is Pan American,” said Linton. “Instead of building walls, we should be more inclusive with Mexico and our other southern neighbors as well as Canada. This is how we can achieve the supply chain dream in which everything you need is within a week’s shipping distance.”
And in the ports and railyards of this Pan-American future, Linton foresees intelligent equipment expediting shipping more effectively than the most experienced human logistics pros. “The growing intelligence of the edge will capture much attention and investment over next few years,” he said.
Within a few years, he imagines, a truck with excess capacity will autonomously broadcast its route and available space to a stack of shipping containers, saying the equivalent of “Hey, I’m empty. How much have you got?”
“These kinds of things are not unthinkable,” said Linton. “As this edge gets built out, the supply chain profession will be quite a ride.”