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CHICAGO — Two former White House officials say the world’s supply chain has experienced unprecedented disruption the last 2½ years because of the COVID-19 pandemic.
Retired Lt. Gen. H.R. McMaster, who served as National Security Advisor, and Gary Cohn, who was the Trump administration’s director of the National Economic Council, delivered one of the keynote addresses at the Association of Supply Chain Management’s annual conference here.
Despite the crisis, the nation’s stores and warehouses have managed to remain mostly full. Now the challenge, McMaster and Cohn said, is determining what the supply chain will look like going forward and planning for the next disruption. And they see the next crisis coming in Europe this winter with energy supplies likely to be in short supply.
“Our supply chains have been optimized for efficiency rather than resiliency,” McMaster said. “We’re going to need to make a concerted effort to reduce the vulnerability of supply chains.”
But doing that is taking time, effort, money and new ideas and programs, moving away from the “just-in-time” style of management to one that relies more on being adaptable to change and having enough supply on hand year-round.
Cohn said there should also be a discussion about bringing more critical manufacturing closer to U.S. shores and depending less on China for important products such as pharmaceuticals.
“You talk about the global supply chains, and are we de-globalizing the supply chains to some extent,” Cohn said, emphasizing his concern over the upcoming winter in Europe because of that continent’s reliance on Russia for energy. Russian leader Vladimir Putin cut off supplies to those nations that supported economic sanctions against Moscow after its invasion of Ukraine.
“I don’t believe Europe right now has the capacity to get through a cold winter or a normal winter with the gas storage that is available to them. Two things you can’t do as a politician: you can’t allow your people to be hungry or be cold,” he said. “The difficult decision in Northern Europe is going to have to be made — do we allow industrial usage of energy or cut off industrial usage to allow people to heat their homes to some degree; and if we cut down industrial capacity in Europe, it will have a dynamic change in the supply chain.”
McMaster said supply chain professionals need to recognize this challenge.
“You can’t rely on Russia, but this is not something new,” McMaster said. “Germany really deepened its dependence on Russian oil and gas in a way that made it quite dependent on Vladimir Putin.”
From the #ASCMCONNECT opening keynote panel: @LTGHRMcMaster says supply chain professionals should “advocate for doing now what everyone wants to postpone” in order to prepare for what’s ahead. #ASCMCONNECT pic.twitter.com/Npxtg4jWTJ— ASCM (@ascm_hq) September 18, 2022
Both Cohn and McMaster said decisions that were made 10 and 15 years ago to bring Russia into the international supply chain are now having to be reconsidered in light of Ukraine.
And they said it is time for democratic nations to begin spending on their own infrastructure, including energy pipelines and power plants to lessen the impact of being dependent on Moscow.
“We need to advocate now for doing what everyone wants to postpone, which is big capital investments and shifts in supply chains or to pay more to make supply chains much more resilient,” McMaster said. “You see the infrastructure in Europe now starting to shift with some of the natural gas discoveries in the eastern Mediterranean and pipelines that will now challenge Russia. So these are big adjustments that have to be made. They will take time, but it will take even longer if you don’t start now.”
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Doing nothing is a decision, Cohn said.
“When you choose to do nothing, you are making a decision,” he added. “This European problem may not be going away any time soon, and if you’re in industrial Europe, you have to start looking at viable alternatives. It’s liquid natural gas, it’s gas out of the Mediterranean, gas out of Cyprus, and North Africa; and you have to look at the power plants and nuclear power. Nuclear power is one of the most viable sources of energy.”
McMaster emphasized that natural gas should be a so-called bridge fuel as the world develops more renewable energy sources later this century, because natural gas is much cleaner than other fossil fuels, especially coal.
“Countries are burning more coal. When you burn more coal you increase carbon emissions and poison the Earth,” McMaster said.