The most important thing to understand is that the current issues in supply chain exist because the last few decades we have evaluated companies with the lens of “cheaper, better, faster.” Profit margins for companies are calculated by landed unit cost, which consists of raw materials cost, transportation costs, and labor costs.

In a relentless drive to lower landed unit cost to drive profits, companies pushed manufacturing overseas, since any savings in labor costs would have the biggest impact on their margins. With diesel freely flowing, and the cost of carbon emissions not factored into transportation costs, it became more profitable to move labor to the cheapest countries, regardless of the geographical source of raw materials, and regardless of where the final consumer was located.

Nixon’s historic visit to China in 1971 paved the way to the world’s largest and cheapest workforce. Hungry for economic growth, the Chinese government lowered export tariffs and raised import tariffs, essentially driving the flow of goods outward and amassing a huge trade deficit. US consumers became accustomed to cheaper and cheaper goods, and domestic manufacturing capacity of many types of goods shrunk. An era of unprecedented global trade followed. For the first time in human history, unfettered global trade and the oversight of the World Trade Organization meant that most of the world was doing business with each other, and could reap the benefits of the free market together.

Obsessed with manufacturing efficiency, the global economy did not recognize the impact on climate change and raw materials consumption. As the price of manufacturing reached local minimums, quality had to be sacrificed to continue to increase profit. When prices reached global minimum, the only ways for companies to increase profit was to sell more and more, as the only way to grow was to increase profits. The push to sell more coupled with long lead times and demand volatility has led to overproduction of many goods.

Thus, the current consumer economy is used to single-use products, less durable products, and immediate gratification. “Cheaper, better, faster” has really been “cheaper and faster,” and the global community is now grappling with the effects of optimizing around profit margins calculated from landed unit cost.

The only way to resolve this is to shift the paradigm to “sustainable, resilient, efficient.” As a whole, we must re-evaluate how we measure profit. Including overproduction and under-production into profit margins, as well as the calculation of environmental impacts such as a carbon emissions and landfill space, will be key to ensuring a strong supply chain and stronger economy for the long-term. By re-thinking how we measure company performance, we will incentivize shorter lead times for products with demand volatility, more durable goods, and nearshoring of production that will revitalize local economies. Shorter lead times and nearshoring production will reduce carbon emissions from freight forwarding. More durable goods will result in reduced consumption of raw materials, and less waste to dispose of. Supply chains with vendor redundancy mean more resilient supply chains that can withstand shocks like pandemics and wars. More resilient supply chains mean more resilient economies.

As a community, we can build a more sustainable future while improving the economy. Sustainable, resilient, and efficient supply chains will enable us and future generations to live better lives.

With the pandemic being front and center for the last few years, it's easy to forget that we have started -- and not yet finished -- a trade war with China, the world's largest manufacturer.