Supply Chain Disruption and the Future of Globalization:

The COVID-19 pandemic and other forces spurred widespread disruption in the global supply chain, dramatically slowing shipments, causing shortages of essential products, and creating inflationary pressures that are pinching consumers at the pump and the cash register.  What’s behind all of it? And what does it mean for the future of globalization?

“I’ve never seen a disruption like that in my career,” says Jerome Griffith, a 1979 graduate of the Penn State Smeal College of Business and the recently retired chief executive officer of Lands’ End, an American clothing and home décor retailer. Griffith, who now holds the position of executive vice chair and is a member of the firm’s Board of Directors, points to a convergence of factors — radical shifts in consumer demand, transportation bottlenecks, and skyrocketing raw material costs — that compelled Lands’ End and companies around the world to abruptly revisit almost every aspect of their operations. 

“For example, we had to organize our design staff to be able to design products without seeing one another and without seeing the products,” he says. “We were beginning a six-month transition to 3-D design that we implemented in about five weeks.”

How did we get here? It’s a question asked by many in the past few years. Brent Moritz, associate professor of supply chain management at Penn State Smeal, points to a variety of factors, including the rise of outsourcing in the early 1980s to achieve economies in production. Firms reaped the benefits of lower labor costs, which led to the growth of global logistics, and the proliferation of “Made in China” labels on products consumed by millions of Americans.

“Supply chains thrive on what we call swift and even flow,” Moritz explains. “And for decades, we experienced swift and even flow, with a few minor exceptions. COVID upended that dramatically. It’s no longer swift, it’s no longer even, and the benefits of outsourcing are no longer what they once were.”

Griffith says the cost of transportation and raw materials exacerbated the impact of the pandemic on his firm and posed a significant threat to its bottom line.

“We sell a lot of supima cotton. In fact, we’re the third largest manufacturer of supima cotton goods in the world, and those costs increased 50% because of drought conditions in many countries,” he says. “We had to go back and relook at what we’re making products from and what goes into those products in order to balance average unit cost with average unit retails.”

The impact of COVID, the war in Ukraine, and an increase of natural disasters at home and abroad have left many questioning the economic benefits — and future — of globalization. Is “Made in America” back?

“I’ve lived overseas for 16 or 17 years of my career. My wife is from Europe. And I’ve always thought globalization is something that is a big plus for the world — not just because of global trade, but because of understanding other people and looking at things from a different culture’s perspective.  I still believe those are good things.”

Yet, Griffith and Moritz both advocate for a clear-eyed assessment of globalization’s risks as well as a robust diversification strategy for managing the procurement of resources, production, and transportation of goods in the future.

“Companies are getting a lot more thoughtful about their supply chains,” Moritz says. “They’re adding second sources, and sometimes they’re thinking about reshoring. Until recently, Apple manufactured its iPhones in China. But they chose to produce some of the iPhone 14s in India for diversification purposes. It gave them a second source.” – Rick Ayers