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Don't get all your eggs from one basketBy Kay Plantes
Journalist Barry Lynn, author of "End of the Line: The Rise and Coming Fall of the Global Corporation," views the recent spinach scare as the tip of a product supply disruption iceberg floating towards our nation. Lynn was a recent guest of the Madison Committee on Foreign Relations, a club that brings principals in current foreign policy topics to Madison for candid discussions. According to Lynn, America's manufacturing sector has undergone a twin revolution. The first is outsourcing. Corporations used to be vertically integrated, manufacturing their smallest sub-assemblies. Today, they are final assemblers and packagers, outsourcing significant manufacturing content in order to lower labor costs, remain price competitive, and focus instead on higher-value activities. Nike specializes in marketing and design, outsourcing shoe production. GE Medical adds value through system design and servicing, outsourcing sub-assemblies. The second revolution is an unprecedented globalization of the industrial supply chain. Technological advances and growth in free trade have resulted in global economic specialization that both lowers costs and raises global income. Taiwan now dominates semi-conductors; China's per-capita income almost doubled from 2000 to 2005. The net result, according to Lynn, is a global system of production on which the U.S. is totally dependent because we've lost knowledge, skills, and capacity to produce goods domestically. The reward? Significantly lower consumer prices and record corporate earnings. The price? Much more risk. We have collectively created a specialized, highly efficient global supply chain lacking redundancy -- and therefore resiliency -- in the face of disruptions. A natural disaster or political uprising in Taiwan, for example, will easily and quickly stop the flow of microelectronic products into our country. The risk is avoidable. In financial and energy markets, nations formally collaborate to ensure no single disruption will collapse the system. Financial services companies and our government realized the value of duplicate record centers following 9/11. Will we need an economic crash to ensure manufacturers purchase from multiple countries and regions and demand their suppliers do the same? Locally, what are we to do? First, challenge your organization's purchasing decisions. While all Greater Madison's hospitals have redundant generators, hospitals have not yet demanded that their suppliers source their products from multiple continents and countries. Second, think about the secondary effects of your purchasing decisions. Buying locally, for example, keeps more money in our community, generates incremental jobs, increases donations to community non-profits that benefit still others, and sustains stores that make the Capital Region a unique place in which to live or vacation. Ancora Coffee or Starbucks? QTI or Manpower? Woodman's or Wal-Mart? A locally owned or national chain restaurant? Some shifts in our buying will help all our businesses in the long term. Finally, remember that interruptions like the spinach scare also create economic opportunities. Why couldn't Capital Region farmers grow spinach year-round (like Sow Little Farm does for raspberries) and form a cooperative to package and distribute it to Wisconsin grocery stores through www.greenleaf.com, a new on-line food distribution Web site linking local growers to local institutional buyers? As you enter the holiday season, a time for reflection and resolutions, think about your buying decisions. Free trade, efficiency strategies, and specialization are all good things. But, taken to their extreme, we're "penny wise and pound foolish." Kay Plantes is a Madison economist, strategy consultant and executive educator. plantes@execpc.com madison.com ©2009 Capital Newspapers. All rights reserved. |
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