Long term contracts to lock in manufacturing

Off shored production is now emblematic of several problems. I remember reading the “world is flat” by some “distinguished author” and the cheerleaders locally. It has taken almost 16 years for that model to fall flat on the ground. The global “production” chains are not the smartest way to achieve efficiencies.

I am not an economist but it is logical to assume to local production can be scaled up on demand. In this day and age we import medical equipment manufactured elsewhere. This is subsiding the companies using the tax payers dollars. The pandemic has driven several ground truths and I stumbled on this interesting write up on moving back production to the US.

Dan writes:

Without stable long-term demand, no company will invest in building production capacity, and potential employees will not invest in acquiring the necessary skills. Also, government funding to build supply won’t be effective without any demand. The experience of one of the last domestic producers of the N95 mask, Prestige Manufacturing, is emblematic. During the swine flu pandemic in 2009, the company geared up production and hired more workers, only to see hospitals shift back to foreign producers once the crisis was over. “Hospitals didn’t stick with us; we had to lay off 150 employees,” Mike Bowen, the president of Prestige, told us. After Covid-19 hit, the company made additional masks only for hospitals willing to sign contracts guaranteeing they would stick with the manufacturer for the long term. As a result, there was a six-month delay in scaling up production, and its output was significantly smaller than what Prestige might have produced had there been more certainty about the stability of future demand.

There can be many reasons why the production is usually off shored. One, it could be related to labor laws or local regulations. The other is the “cost” but “comparable quality”.

I wont name my LINAC, for example, where the manufacturer offers absolute shit service because they can get away with it. IN the event of a major breakdown, the local engineer has to source components through various time zones and then “expedite” the delivery with the import restrictions. It is absolutely insane model for critical equipment. I have my thoughts on this and will be expanding them soon.