economic recovery | The Contracting Education Academy

May 14, 2020 By cs

Why restarting the global economy won’t be easy

As the world contemplates ending a massive lockdown implemented in response to COVID-19, Vinod Singhal is considering what will happen when we hit the play button and the engines that drive industry and trade squeal back to life again.

The U.S. gets close to a trillion dollars of products annually from Asian countries, and most are shipped by sea, which requires a four-to-six-week lead time. Here, containers are stacked at a Georgia Ports Authority facility in Savannah. (GPA Photo: Stephen B. Morton)

Singhal, who studies operations strategy and supply chain management at the Georgia Institute of Technology, has a few ideas on how to ease the transition to the new reality. But this pandemic makes it hard to predict what that reality will be.

“We know pandemics can disrupt supply chains, because we’ve had the SARS experience, but this is something very different,” said Singhal, the Charles W. Brady Chair Professor of Operations Management at the Scheller College of Business, recalling the SARS viral pandemic of 2002 to 2003. But that event did not have nearly the deadly, worldwide reach of COVID-19.

“There is really nothing to compare this pandemic to,” he said. “And predicting or estimating stock prices is simply impossible, unlike supply chain disruptions caused by a company’s own fault, or a natural disaster, like the earthquake in Japan.”

The earthquake that shook northeastern Japan in March 2011 unleashed a devastating and deadly tsunami that caused a meltdown at a nuclear power plant, and also rocked the world economy. It was called the most significant disruption ever of global supply chains. Singhal co-authored a study on the aftereffects, “Stock Market Reaction to Supply Chain Disruptions from the 2011 Great East Japan Earthquake,” published online in August 2019 in the journal Manufacturing & Service Operations Management.

But COVID-19 represents a new kind of mystery when it comes to something as complex and critical to the world’s economy as the global supply chain, for a number of reasons that Singhal highlighted:

The global spread of the virus and duration of the pandemic. “We have no idea when it will be under control and whether it will resurface,” Singhal said. “With a natural disaster you can kind of predict that if we put in some effort, within a few months we can get back to normal. But here there is a lot of uncertainty.”
Both the demand and supply side of the global supply chain are disrupted. “We’re not only seeing a lot of factories shutting down, which affects the supply side, but there are restrictions on demand, too, because you can’t just go out and shop like you used to, at least for the time being,” he said. “And all this is taking place in an environment where supply chains are fairly complex – intricate, interconnected, interdependent, and global.”
Longer lead times. “We get close to a trillion dollars of products annually from Asian countries, about $500 billion from China,” Singhal said. “Most are shipped by sea which requires a four-to-six-week lead time. The fact that logistics and distribution has been disrupted and needs to ramp up again will increase lead time. So, it will take time to fill up the pipeline, and that is going to be an issue.”
Supply chains have little slack, and little spare inventory. While manufacturing giants such as Apple, Boeing, and General Motors have more financial slack to carry them through a massive economic belt tightening, their suppliers, spread out across the globe, come in different sizes, different tiers, “and these smaller companies don’t have much financial slack,” said Singhal, pointing to a report of small and medium sized companies in China, “which have less than three months of cash. They’ve already been shut down for two months, and cash tends to go away quickly.

“Many of these companies may go bankrupt,” he added. “So we need to figure out how to reduce the number of bankruptcies. Government is going to play an important role in this, and the stimulus package the U.S. has approved will be helpful.”

Trying to get a handle on how stock markets are responding to all that has happened is like trying to take aim at a moving target during a stiff wind. Volatility has increased significantly since February 13, when the Dow Jones index reached an all-time high of about 29,500.

“That’s because we did not expect the pandemic to spread and disruptions initially were low because of pipeline inventory,” Singhal said, noting that since then the Index dropped sharply, to 18,500 on March 23 (a decline of nearly 38 percent), it picked up and was back to 22,000 by March 30. “The same is true of other stock markets. The Chinese stock market was down 13 percent, but they seem to have the pandemic under control.”

While COVID-19 is making it difficult to predict what the market will look like, Singhal has some ideas of which industries will be most affected.

“Travel, tourism, entertainment, restaurants – businesses that rely on people going out—will take a long time to recover, in terms of profitability and stock price, even once the pandemic is contained,” he said. “People are going to be hesitant to travel after all this. Tourism will take a hit.”

Essentials like groceries are surging as people stock up in reaction to being shut in, but this isn’t a long-term trend. Singhal doesn’t expect this trend to continue as shopping habits and store shelves eventually normalize.

Companies that sell basics, with a strong online presence, will do well, “but industries like automobiles and electronics, which have global supply chains and have a hard time replacing specialized, high-tech components will be affected,” said Singhal, who also has suggestions on the most important issues to address and how to help speed up the recovery and bring supply chains back to normal (or whatever normal looks like after this):

The ability to bring capacity online, especially for small and medium-sized companies. “Facilities and equipment may need some time to restart,” he said. “Staffing is a big issue. How quickly can you get people back to work? Also, can you get the raw materials and build up the inventory to support production? That may be tough when pent up demand is being released and everybody is competing for limited supplies.”
Distribution. Lead times already are long, he notes, and a sudden increase in demand for logistics and distribution services as everybody ramps up again could extend lead times.
Prevent bankruptcies. Government programs need to be established (like the U.S. stimulus package) to keep small- and medium-sized firms in business. This concern extends to second- and third-tier suppliers, and large firms like Apple or Boeing or GM, should do the same for their most critical suppliers.
Build slack. “Preserve cash, get new lines of credit or draw down lines of credit, maybe cut dividends or stock repurchases,” Singhal said. “And build inventories of critical components.”

Singhal also stresses the need for transparency, up and down the supply chain: “What that means is, companies need to have a good understanding of what is happening to their customers and suppliers, but not just their immediate, first tier customers and suppliers, but also their customers and suppliers, and so on up and down the line.”

It will be very important going forward for the next several months to monitor the health of the supply chain from both the customer perspective and a supplier perspective, because this is a new world, says Singhal, who adds an optimistic postscript, “It’s a crisis situation now, but I think we can put it back together.”

Source: http://www.news.gatech.edu/2020/05/10/why-restarting-global-economy-wont-be-easy

For more coverage of Georgia Tech’s response to the coronavirus pandemic, please visit our Responding to COVID-19 page.

The Contracting Education Academy at Georgia Tech has established a webpage where all contract-related developments related to the coronavirus (COVID-19) are summarized. Find the page at: https://contractingacademy.gatech.edu/coronavirus-information-for-contracting-officers-and-contractors/

October 28, 2014 By AMK

White House releases Georgia Tech-influenced national manufacturing roadmap

Leaders from Georgia Tech participated in the release of the President’s Advanced Manufacturing Partnership (AMP 2.0) final report, a one-year endeavor to outline a roadmap to secure U.S. manufacturing competitiveness. Georgia Tech President G.P. “Bud” Peterson served on the 19-person AMP 2.0 Steering Committee and numerous faculty and staff put in many hours serving on various workstreams that focused on different aspects of manufacturing competitiveness. This effort builds on the original AMP which kicked off in 2011 and ended in 2012 and also included Georgia Tech as one of a select few universities invited by the White House to participate.

Both President Obama and Commerce Secretary Pritzker attended the out-brief from the AMP Steering Committee on Oct. 27, 2014 in the Roosevelt Room of the White House, and Georgia Tech Provost Rafael Bras represented Georgia Tech.

“The Georgia Tech community should be proud of the role that our team played in influencing this important report,” said Georgia Tech President Peterson. “Manufacturing has been central to Georgia Tech’s mission since its founding and we’re honored to add our collective experience and expertise to help grow the manufacturing economy in our country.”

Building upon the report, Obama announced a series of executive actions to strengthen U.S. advanced manufacturing, including a $300 million investment in the emerging technologies of advanced materials including composites and bio-based materials, advanced sensors for manufacturing and digital manufacturing. Read about the multi-agency and private sector effort >

Following the White House meeting, Georgia Tech researchers were invited panelists at a briefing hosted by the Innovation Policy Forum of The National Academies to discuss the report’s recommendations for enabling innovation, securing the talent pipeline and improving the business climate for manufacturing. Georgia Tech’s Tom Kurfess, Professor of Mechanical Engineering, addressed the report’s findings for enabling innovation, specifically on developing technologies to build a National Network for Manufacturing Innovation (NNMI). Jennifer Clark, Director of the Center for Urban Innovation at Georgia Tech, spoke on Improving the Business Climate and recommendations related to Scale-up Policy. The U.S. has been the leading producer of manufactured goods for more than 100 years, but strengths in manufacturing innovation and technologies that have sustained American leadership in manufacturing are under threat from new and growing competition abroad.

The AMP 2.0 report identifies the role of the Executive Office of the President in coordinating the federal government’s advanced manufacturing activities and defines responsibilities for Federal agencies and other Federal bodies in implementation.

October 3, 2011 By AMK

The economic impact of a near-shutdown

Senate Democrats and Republicans have narrowly averted a government shutdown for the third time this year. But the stop-gap funding measure only lasts through Nov. 18, at which point Congress will probably again inch toward the same precipice as it negotiates the 2012 budget.

The bad news for the economy is obvious. Shutdown brinkmanship will divert employees’ time, make planning difficult for businesses that contract with the government, and call into question lawmakers’ ability to create credible policy.

The good news is that not everyone thinks it will have all that much economic impact, because we’ve been there before and the next rounds are likely to be no worse.

Washington Post columnist Ezra Klein pointed out this week after the Senate’s agreement on Monday that the shutdown brinkmanship itself damages the economy. Klein asserted that, in fact, the immediate effects are probably somewhat worse than you think.

One cost is straightforward: Preparing for a potential shutdown takes employees’ time away from performing other, more vital functions. But there are also knock-on costs tied to the rise in uncertainty and loss of confidence that accompany such talks.

About one-quarter of workers in the United States are federal employees or work for a company that contracts with the government, said Heather Boushey, senior economist at the liberal Center for American Progress. Contractors who don’t know if their services will be needed may postpone any new hiring, even if their current employees are stretched thin.

“One would have to infer that this is certainly affecting their business plans and how they’re thinking about what sorts of investments they’re going to make,” she said.

It’s not just employers whose plans are changed by discussion of a shutdown. If you’re an investor and you think the U.S. won’t update its power grid, improve its schools, or guarantee health care for its sick, you’re probably less inclined to invest there, Boushey said.

“I’m not saying that this is devastating to the economy,” she added. “But in no way, shape, or form is this actually spurring economic recovery.”

Shutdown talks also call into question the government’s ability to create credible future policy, according to Alec Phillips, Washington policy analyst for Goldman Sachs.

“The concern is not so much about whether the government will be open for one or two days–or closed for one or two days–as a result of a shutdown,” Phillips said. Lawmakers’ ability to agree on the basic functioning of government signals whether they’ll be able to agree on more significant reforms, such as the savings the joint committee on deficit reduction has been charged with finding by November.

But one silver lining is that not every economist thinks the recent standoffs had much of a negative effect on the economy. Ian Shepherdson, chief U.S. economist at High Frequency Economics, in an e-mail called the impact “negligible,” saying it failed to grip the nation like the summer’s debt-ceiling debate.

That’s because we’ve already experienced this, Goldman’s Phillips said. The government has shut down 17 times in U.S. history. So while brinkmanship “clearly doesn’t help” confidence, it lacks the clear negative impact of the debt-limit negotiations.

Future budget negotiations may have an even more slight impact.

The first time the government came close to a shutdown was probably the scariest, said Alex Brill, a research fellow at the American Enterprise Institute and a former senior adviser and chief economist to the House Ways and Means Committee. The more often Congress reaches the brink and comes to an agreement before shutting down, the less damaging the process becomes, he said. People may have less confidence in the political process, but, over time, shutdown talks will have a more limited impact on their confidence in the economy itself.

So long as the process marches toward a better budget, the cost of the brinkmanship is worth it, Brill contends. He draws the analogy of a two companies merging. The acquiring company incurs a significant one-time charge. But that charge is ultimately made up for in the improved business.

Although this week’s shutdown confrontation received little media attention compared to the previous two, it is a harbinger of the confrontations that will take place in November when the entire 2012 budget is up for negotiation.

But there is some, if not much, comfort in the fact that while the upcoming negotiations may be charged, their economic impact will likely be no worse than the three to-the-brink-of-shutdown talks this year.

— by Catherine Hollander – National Journal – September 28, 2011- at http://www.govexec.com/story_page.cfm?articleid=48911&dcn=e_gvet

June 17, 2011 By AMK

All agencies looped into Campaign to Cut Government Waste

Vice President Biden on Monday announced the launch of a Campaign to Cut Government Waste, creating an oversight board modeled on the Recovery Accountability and Transparency Board, which used a central website to track federal stimulus money.

The head of the new board will be former Interior Department Inspector General Earl Devaney, who has been chairing the Recovery Board.

Joined at a press conference in the Executive Office Building by Office of Management and Budget Director Jack Lew, Biden said, “The American people have lost confidence over the years in the ability of government to deliver” on spending money with minimal fraud and abuse. “The fundamental rationale for this campaign is to regain that public trust.” It means requiring every agency to focus on “transparency and accountability” by putting the spending on websites to involve the public and create “hundreds of thousands of inspectors general,” Lew said.

Also on Monday, the White House released details on the campaign to “hunt down and eliminate misspent funds” in the form of an executive order titled Delivering an Efficient, Effective and Accountable Government.

Building on what Biden called the “success story” of the Recovery Act’s “unprecedented transparency to drive accountability and prevent fraud,” the order signed Monday by President Obama creates the 11-member Oversight and Accountability Board to “replicate” the Recovery Board’s work across government, using existing government employees. Working with Devaney will be agency inspectors general, chief financial officers or deputy secretaries, an official from the Office of Management and Budget, and other members the president may name.

The order commits each Cabinet member to track progress and report monthly during meetings with the vice president. It also requires chief operating and financial officers to report progress regularly to OMB.

In addition, the initiative will target duplicative federal websites, calling for an immediate halt to the creation of new sites and working with agencies to shut down 25 percent of some 2,000 sites over the next few months.

“We’re going to hit every corner and track every dollar,” Biden said, while “institutionalizing” the anti-waste campaign as “part of a new culture.”

Republicans on Capitol Hill may be on roughly the same page. House Oversight Committee Chairman Darrell Issa, R-Calif., who unveiled legislation to create a similar oversight board just hours before Biden’s announcement, issued the following statement: “The American people have a right to know how their money is being spent. There is common ground and bipartisan support for legislation to increase transparency and openness in all federal spending because the problem we face is not a partisan one, it is a bureaucratic one,” he said. “The bureaucracy is resistant to change.”

Issa said he looks forward to working with the Obama administration to curb waste and improve transparency.

Federal Chief Performance Officer Jeffrey Zients, in a conference call with reporters, said he had not had time to study the Issa bill. But he said, “The train that left the station two years ago with the president and the vice president driving it, which led to an unprecedented low level of fraud in spending under the Recovery Act, is headed, lots of people feel, in a good direction. We look forward to working with Issa and others in both houses of Congress to take the best practices from this earlier effort.”

Though many Republicans argue that the 2009 stimulus package failed because the unemployment rate remains high, Lew praised it as a model for making the entire government more transparent and accountable. “When President Obama came in 2009, our two goals were stopping the economy’s free-fall and changing how Washington does business, to make it more transparent and accountable,” Lew said. That’s why the president appointed Vice President Biden, who calls himself the new “sheriff” in the battle against waste, “because he has experience as a guardian of taxpayer’s needs.”

Lew and Biden detailed administration progress in reducing no-bid contracts, cutting improper payments and disposing of unneeded real estate. The same day the Campaign to Cut Government Waste was launched, the White House issued a new summary of the Accountable Government Initiative led over the past two years by Lew and Zients. It talks of cutting federal contracting for the first time in 13 years, identifying $3 billion in information technology savings and shutting down duplicative data centers.

Other potential efficiencies it cites are leveraging large-scale purchasing power in office supplies (which could save up to $200 million over the next four years) and pooling cellphone plans (which could save more than $180 million over six years.)

Biden on Monday credited Devaney as his “point man, without whom I don’t think we would have accomplished all this to make government work better.” He said Devaney’s work tracking spending at the Recovery Board “set the standard for transparency and accountability and comes with a high bar.” Of $480 billion spent on the stimulus, less than $3 million turned out to be fraud, Biden said. “It shifted the paradigm.”

Biden’s expects the Campaign to Cut Government Waste will replicate governmentwide the “post-modern technology” and “sophisticated tools” that Devaney’s Recovery Board set up to track funding, based on consultations with the FBI, the CIA, the Defense Department and the Homeland Security Department. Websites will allow local citizens to track each item of spending, explore whether designated projects are actually getting built and report any items that appear suspicious.

An example of the technology Biden noted was the time a monitor in the Recovery Board’s “war room” went on Google maps and found that a stimulus money recipient who was said to be running five corporations was in fact operating out of a boat off the Florida Keys.

“I asked Earl when he discovers waste and fraud, that he tell me so I can announce it and help the public regain confidence,” Biden said.

One apparent difference between the administration’s plan and Issa’s is that the board envisioned by the congressman would include a Senate-confirmed head.

Under Issa’s plan, a single new website would replace Recovery.gov and USAspending.gov, which tracks standard government spending. The information on the site would come both from the federal agencies that spend the money and from recipients of federal funds who will be required to report those receipts in a standardized form.

Both the Issa and Biden plans appear to draw from a proposal Devaney made in a not-yet-public memo he recently sent to Biden. Devaney described the proposal in an interview last week with the Center for Public Integrity’s iWatch News service.

Devaney is slated to testify about that plan before Issa’s committee on Tuesday.

In promoting the campaign on Monday, Biden said that while the effort won’t fully solve the federal debt problem, it is important to “change the attitude of how we do business in Washington. We plan to create the most transparent and efficient federal government in our lifetime.”

— by Charles S. Clark – NextGov – 6/13/2011 – at http://www.nextgov.com/nextgov/ng_20110613_8013.php?oref=rss?zone=NGtoday

June 2, 2011 By AMK

Obama’s regulatory chief announces reforms at 30 agencies

Fleshing out agency responses to President Obama’s push to rethink regulations, Office of Information and Regulatory Administrator Cass Sunstein on Thursday announced alterations to long-standing rules under way at 30 federal agencies that together, he said, could save billions in dollars and millions of staff hours.

In his summary of agency progress 120 days after Obama’s Jan. 18 executive order, Sunstein said current paperwork reduction efforts at the Transportation and Labor departments and the Environmental Protection Agency alone could save $1 billion and tens of millions of work hours for state and local governments. He spoke at a talk titled “A Regulatory Look-Back: A First Look” at the American Enterprise Institute, his former employer, and he published a related op-ed on “21st-Century Regulation” in the May 26 Wall Street Journal.

The Obama initiative, Sunstein said, is “a corrective to national debate on regulation that has become polarized and stylized in a way not helpful. One side,” he said, “defends reductions in deaths on the highway, fighting fraud and abuse, keeping air and water clean and our food safe. But more recently, the other side says such regulations impair competitiveness, undermine innovation and ultimately cost jobs.

“They are legitimate arguments, but we can’t be solving serious problems in the abstract. The polarized debate is stuck in the past.”

A modern regulatory approach, he said, cannot rely on “anecdotes or intuition,” but instead must move toward “real-world random testing” of the benefits and harms of regulations. This requires “a change in culture in Washington to focus constantly on what is and what is not working,” he said. In the future, “agencies must hard-wire such scrutiny into agency processes.”

Today’s professional regulators “know much more than they knew during the New Deal and the Great Society,” or even during the 1980s and 1990s, he added. “Now we have state-of-the-art technology for cataloging the impact, risks and costs of regulations. Sometimes in reducing one risk, you increase another and there are ancillary harms,” he said. “But there are also ancillary benefits, and lives are saved.” What is desirable, he said, is “free choice, which both provides liberty and costs less.” Simpler regulations and public disclosure “help produce informed choices and creative approaches,” Sunstein said.

Sunstein made a bid to bridge the partisan divide. “It’s true that people’s values differ, but when the evidence is clear, it will lead in a direction even if there is an intensive difference in values. If a regulation brings big costs and little benefit, then citizens are unlikely to like it regardless of whether they are elephants or donkeys,” he said.

Examples of agencies’ current work include 70 initiatives at Transportation, 50 reforms at the Health and Human Resources Department, and 12 short-term high-priority projects at EPA. The Treasury Department has a five-year paperless initiative that will save 12 million pounds of paper and $400 million, Sunstein said.

EPA recently decided that that classifying milk as an oil — and thus requiring precautions to prevent oil spills — was an unjustifiable burden on dairy farmers, and so the resulting easing of rules will save industry $1 billion in the next decade. Similarly, EPA determined that gas stations no longer need air pollution recovery systems because modern vehicles do the job, saving upwards of $60 million annually, he said. And the Occupational Safety and Health Administration, he said, will save millions of dollars by eliminating 1.9 million annual hours of redundant employer reporting.

“Many of the [reforms] focus on the small businesses that create jobs,” Sunstein said. “And some are a fundamental rethinking of how things have been done.”

He is also determined to rid the Code of Federal Regulations of references to countries that “no longer exist.”

Laying out four principles, Sunstein said modern regulations should encourage public participation through ready access to scientific and technical information; should be harmonized and simplified to boost innovation; should use quantification to catalog costs and benefits; and emphasize freedom of choice, which “promotes compliance.”

In response to a questioner, Sunstein acknowledged that some of the recent changes were expansions of regulations rather than eliminations.

The National Association of Manufacturers, which has long been critical of Obama’s approach to regulation, reacted to Sunstein’s announcement with a statement: “Manufacturers are encouraged by the Obama administration’s efforts to streamline or remove several outdated and unnecessary regulations to allow manufacturers to focus on what matters most — creating jobs and economic growth. However, manufacturing workers will not fully benefit until the crushing burden of proposed new regulations is brought under control.

“The administration has taken several positive steps recently,” the group said. mentioning EPA’s effort on industrial boilers and OSHA’s work on noise standards as indicators that the administration has heard the concerns of manufacturers. “But new burdensome regulations such as those proposed by EPA to regulate greenhouse gas emissions and change ozone standards are a real threat to job creators and the economy. While today’s announcement is a great step, more must be done to limit the cumulative burden of regulations on businesses.”

Matt Madia, regulatory policy analyst for OMB Watch, a monitoring nonprofit, had a wait-and-see response. “There’s nothing wrong with doing a review,” he said, “but we should not lose sight of the fact that these regulations were written for a reason — to protect the environment, human health and the economy.”

Sunstein said there currently are 120 rules under review at the Office of Management and Budget and that the look back has not caused any noticeable slowdown.

The agency actions released today are for public comment, and should be finalized in “roughly 80 days,” he said.

Sunstein called his initiative “a defining moment” that will have impact decades in the future. He quoted Alexander Hamilton’s first Federalist paper, in which the Founding Father asked whether the country would be guided by “reflection and choice or be forever destined to depend on accident and force.”

– by Charles S. Clark – Government Executive – May 26, 2011 at http://www.govexec.com/story_page.cfm?articleid=47880&dcn=e_gvet

As the world contemplates ending a massive lockdown implemented in response to COVID-19, Vinod Singhal is considering what will happen when we hit the play button and the engines that drive industry and trade squeal back to life again.

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