Rapid Industrial Mobilisation: What Can Go Wrong?
Governments and manufacturers are making heroic efforts to increase production of critical medical supplies. However there are worrying signs that we might be replicating a tragic episode in history.
“The Great Leap Forward” is the name given to the second communist five year plan launched by Mao Tse Tung in 1958. The aim was the rapid industrialisation of China and one particular goal became emblematic of the overall effort. That was the goal to double steel production in one year.
Backyard steel furnaces were engaged across China to melt down every piece of scrap that could be found in to new steel, including cooking utensils and farm tools. The target was achieved, but much of the steel produced was of such poor quality to be useless. As well, huge numbers of agricultural workers were diverted away from farm labour leading to a slump in food production that produced one of the worst famines in history.
Among all the positive stories of breweries, distillers and paint manufacturers producing hand santisers, car manufacturers producing ventilators, I detect signs that we may be headed for another “Great Leap Forward”. Yesterday I spoke to an actual hand sanitiser manufacturer. You know, one of the guys that makes the stuff in normal times. He had orders, but was struggling to supply because he could not get ethanol, packaging and a number of other outputs. With a sudden rush of new producers, there is competition for inputs and the companies best equipped to produce these commodities quickly are facing limits on output.
So What Should We Do Differently?
The first step is find the existing manufacturers of each product and them to increase capacity. Seems obvious, but the start point would be to talk to those companies already producing the product first as they will already have the capability, equipment and established supply chains to produce the product. You need to talk to them and encourage them to change paradigms.
This might mean increasing shifts or converting filling lines dedicated to other products (most of these products will produce other products like cosmetics or sun screens that are likely to be in lower use). This will then determine the maximum available finished goods capacity. You then need to ask them what inputs do they need and help find supplies of those inputs.
For example the hand sanitizer manufacturer I spoke to suggested that distillers would be better off making bulk ethanol and supplying it to him rather than trying to make sanitiser. Simplifying the task can also help. So for example, find out the most useful pack size and just focus on manufacturing that rather than having filling lines attempt to produce a huge range of different pack types and sizes.
Once the capacity of incumbent suppliers is fully utilised, then the next step would be to look for manufacturers with similar equipment and supply chains who could quickly convert. For example producers of household chemicals and cosmetics are likely to have bottle filling lines, mixing equipment and established supply chains for packaging and ingredients that can be quickly converted to making different products.
The same issues apply for all of the essential items in short supply. Donald Trump may criticise General Motors for being too slow and too expensive in producing ventilators, but this underestimates the challenges and risks involved in such a large pivot of production. Instead the best way to quickly increase output of complex product like ventilators is to map the existing end to end supply chain, identify the constraints on output through this supply chain and work on eliminating those constraints.
Countries that don’t already produce those ventilators are best to look for companies with capabilities that are as similar as possible. So in Australia, sleep apnea equipment producer Resmed is being engaged and this makes sense given they are already a producer of medical devices that have similar elements to ventilators (although not the same so the challenge is still significant).
Finally, we need to remember the legacy of the Great Leap Forward – famine. By diverting too many resources in to one sector, we risk creating shortages of other important products and jeopardizing other supply chains.
In writing this article I am conscious of not wanting to criticise the hard working people in government trying to increase production of these critical items or to pour cold water on the various “good news stories” of people trying their hand at making hand sanitiser, open source design ventilators or personal protective equipment. However I think we should learn from Chairman Mao’s mistakes and focus our resources on assisting a few companies that are already experts in each field to increase output and de-bottleneck their supply chains rather than creating many “backyard furnaces”.
This way we will deliver the greatest quantity of these critical items in the shortest time, at the greatest efficiency and with the least impact to the broader economy.