Is It Time to Rethink Globalized Supply Chains?
sloanreview.mit.edu
sloanreview.mit.edu
Yes, this would require subsidies & regulations, and be on a quarter-to-quarter and in most fiscal years "inefficient" use of capital, open to accusations of "waste", "boondoggle", "featherbedding", etc.. Yet, we're happy to pay firemen to polish their trucks while they wait for a fire to happen, or soldiers to 'squander' ammunition shooting at paper targets when there is no war.
Somebody needs to be thinking and acting on more than just shareholder value for the current quarter if we are to remain a nation.
I am not sure, a completely dependent world may make us safer as wars will very hard to execute.
Interdependence, even to the point that war is utterly ruinous with no upside, is no guarantee war wont happen, don't make the mistake most people in Europe did before WWI
I think it's popular today as a distraction from the fact that the American Empire is really held together by military occupations in Europe, Asia, the Middle East, Latin America etc. and not economic ties. Obviously "we just want to make you rich" is much nicer sounding than "we will bomb you if you resist US hegemony".
A major rising power that feels it is being denied its "rightful place" in the world order by the existing power brokers (Germany vs the UK/ China vs the USA) lead by a hardline leader that isn't interested in compromise (Kaiser Wilhelm II/Xi Jinping)
A series of interlocking mutual defensive pacts that will automatically draw nations into war (The alliance of the UK, France and Russia vs Germany and the Austria-Hungary Empire/NATO vs China and Russia)
Regional fighting that is close to leading to direct confrontation between said power blocks (The Balkans/Turkey and Syria)
Rising Globalism and trade interdependance, along with rising nationalistic rhetoric and jingoism, and intense competition for influence in 3rd party states (The scramble for africa/Africa and south east asia and former CIS states).
The major powers slept walked into a horrible war because the rising tensions made it inevitable, and nobody took heroic steps to stop it, sadly it looks like it might be happening again.
Nobody wanted a ruinous war, and most people thought that there was no way a war could really occur or at the very least be sustained due to the need for trade. (Germany at the start of WWI was critically short on stuff like gasoline, fertilizer and the raw materials for gunpowder)
It Happened anyways.
Don't think for a second it can't happen again.
For NATO, the key part is Article 5 that specifies "armed attack against one or more of them in Europe or North America shall be considered an attack against them all", and is intentionally drafted so as to not apply to "Cold war turning hot" in Asia (e.g. the Korean war or Vietnam war or Afghanistan or Iraq) and to any "non-core territories" e.g. French or British overseas territories or pacific islands like Guam. Heck, a literal repeat of Pearl Harbor and invasion of Hawaii would not trigger Article 5 (though NATO could and would likely take action despite not being required to do so) - the NATO treaty is explicitly designed to not draw nations automatically into war unless USSR or someone else starts WW3 in Europe or attacks mainland USA. It's hard to imagine any Chinese actions regarding their ambitions (e.g. South China Sea, Taiwan, Hong Kong) that could trigger the NATO Article 5 which would automatically draw nations into war, anything in Asia would give each nation a choice whether to get involved and if so, how much.
I'm not informed about the Russia-China treaties much, but IMHO they also don't have any strong mutual defence pacts, they have some limited military cooperation and sharing but that's it; they had a mutual defence pact in 1950s but that's long gone now. For example, there's the https://en.wikipedia.org/wiki/2001_Sino-Russian_Treaty_of_Fr... where the strongest relevant obligation in Article 9 would require each party, if it's attacked, to.... immediately contact the other and consult about the situation; it does not include any agreement or obligation to actually do anything about it.
China has a near monopoly on a lot of production. Countries that depend on them certainly won't go to war with them, but that doesn't hinder China from starting a war with those countries, and even gives them an advantage. And it doesn't stop dependent countries from warring with each other and that could even be beneficial to China.
N.B. I use China as an example only. Replace China with any country that might have a near monopoly on production of some kind. The point I'm trying to make isn't "ahhh China scary", it's that interconnectedness may only prevent war if it's actually interconnected, and not a monopoly.
I think the "global interdependence reduces war" hypothesis is pretty strong.
And if the seller is a monopoly on a critical good while the buyer is a tiny fraction of their business, the relationship is asymmetrical and the seller won't suffer nearly as much from a war.
But it does open up avenues for conflict less intense than invasion. The term 'weaponized interdependence' has recently been coined for this. An exploration:
http://henryfarrell.net/wp/wp-content/uploads/2018/05/Weapon...
It was more a claim about Western European countries, which, propaganda aside, were not puppet-states of the US.
Cold-war era US puppet-states were different, and at the time mostly didn't tend to have Macdonald's, at least outside of a capitol. We were busy subverting their democracies, and civil unrest doesn't go well with Big Macs.
But "safer" doesn't necessarily mean "no wars." It's rare, but sometimes wars are just (e.g. ones against those who commit crimes against humanity). A world so economically interdependent that war is truly unthinkable is one where even peaceful coercion like sanctions are too costly to pursue. I don't want economics to enslave morality.
Today, a few generations of people are unfamiliar with the idea that a corporation could act in ways that are consistent with the good of the community, or optimize for long-term growth, value & sustainability.
https://review.chicagobooth.edu/economics/2017/article/it-s-...
There are often strong disincentives, as well. Nike, for example, got themselves into trouble when parts of their supply chain became public. Many more companies regard their unique supply chain as a competitive advantage. So, even if you should take up the time, effort, and expense to research your own supply chain, there's a high likelihood that your upstream vendors will have no interest in sharing their suppliers with you.
There are exceptions to this. Reportedly Apple has excellent supply chain visibility, but they've achieved it at great effort.
(I'm by no means an expert, but I used to work for sourcemap.com, an MIT startup based around the idea of understanding supply chains end-to-end.)
The only reason there's any question who's the richest person in the world is that Sam Walton is dead.
(Trivia) EDES was one of the few users of RPL (RapidGen Programming Language) - Decision Table based, and running on PDP11s and later MicroVaxs.
https://www.cbronline.com/news/sterling_commerce_buys_into_u...
- Counterfeit components, like memory out of spec that creates scaled failures.
- Fake products from the channel.
- Fundamental mistruths with regard to how services are delivered.
- Poor operational practices for maintaining SLA, especially for off-shored services. Those ops folks will move mountains to meet the minimum standard of "up", but will allow problems to fester.
- Fraud. Fake on-site employees sending work back to a boiler room with people actually doing the work.
- Fraud. Named users actually being fake people sharing a credential. In one case, a colleague in a manufacturing case discovered this when he accidentally received a link to an open video stream of a MFA token.
- Fraud. Stuffing fake or inferior products into orders. Example: Order new laptops, find a bunch of refurbs in the pallets.
Basically, people suck and if you primarily make purchasing decisions based on price, and you care about what you are buying, you need to treat the counter-party as a potentially hostile actor and assume that you are going to be ripped off.
But generally value derives from multiple independent credible verifiable audit mechanisms.
A company with a reputation for quality can charge more, because you don't need observers and can just rely on them. And they want to deliver on the reputation, so that they can keep milking it.
JS Mill has some interesting observations going back a ways.
Auditing is still recommended.
Ignoring auditing for a moment:
The trustworthy reputation is quicker to build, if the quality of the product is easy to ascertain quickly.
But if you are a company in a sector where that's not possible, the reputation for quality becomes even more valuable.
And you can potentially ride it out for a long time in an exit scam. https://en.wikipedia.org/wiki/Exit_scam
Yes you do. You get exactly what you pay for. If you pay for a dozen of German inspectors who think Chinese factory produces junk that is outside the spec, a dozen of German inspectors with that attitude are going to do inspections. If you do no want to pay those German inspectors, you are not going to get those inspections.
In most of the cases companies do not want to pay for it. Apple manufactures amazing iPhones in China. Apple iPhones easily last 5-6 years. Blu manufactures crappy Android phones. They barely last a year. Apple's iphones cost more to manufacture than Blu phones sell for.
But when you build ongoing relationships, you get benefits from not pushing for the bottom dollar at all costs.
This is a classic bait and switch in many online work platforms. The person who interviews for your open contract/role is not the person who does the work.
Also applies to software supply chains:
https://www.platformsecuritysummit.com/2019/speaker/sherman/
> Today’s software is largely assembled rather than written, and most of the assembly comes from open source components. The creation of components and their inclusion into applications creates a “supply chain” just like in conventional manufacturing. While physical supply chains have well established chains-of-custody to establish properties like refrigeration maintenance, authenticity or spoilage avoidance, the software supply chain is very much a wild, wild west, filled with vulnerabilities that can be (and are) inadvertently inserted into applications. As supply chain risk and mitigations are being explored by government and academia, a larger attack surface is being uncovered that needs to be addressed.
We laugh about golf and Vegas visits, but it's really hard to stab someone in the back when you're used to looking them in the eye. If they're just some suit you meet once every three years? Fuck 'em.
Curious to hear examples if you can share.
And enormous expense. You shouldn't have to have Apple money to establish visibility into, and security of, your supply chain. I mean, do you really want to be down in the weeds trying to make sure the coltan isn't essentially coming from Rwandan warlords? Apple can afford that, most people can't.
You could, by default, have lots of visibility in your supply chain. Or you could get a substantial discount in return for giving up on that visibility.
You are arguing that the discount should be smaller?
Ideas like regionalization and flexible manufacturing are great ideas, in most cases, the capital machinery of factories are relatively easy to replicate and setup (harder than software, but much easier now than any time in the past). However, the economic and accounting system needs to balance out the global employee wage differentials for it to gain any traction.
Tariffs have been hated on economically, in part because the analysis values the generic profit creation over the risk; but it seems like one way to balance wage differentials to encourage de-risking our supply chain. I'm sure there are other maybe better methods?
Add 10% of the value of all inventory sourced outside North America as a "risk liability". Same for 10% of yearly labor that's outsourced.
Basically find ways to make short term thinking visible in their financial reports, since that's what's measured and rewarded.
Companies are required to disclose significant risks, but the quality of that disclosure...varies.
Mostly these kinds of risk factors are mentioned verbally in their reports at the moment.
Insurance obligations -- auto, health, life, C&L, bonding, mortgage and title -- are generally required by or offered via third. parties. Sometimes governments, but often creditors, counterparties, employers, or other entities.
If you have to shut down your business, that's mostly impacting your business in a very direct way.
good tariff policy is hard to achieve in divisive political environments however. for instance, in many cases, you'd want them to go away dynamically as conditions improve, but lawmakers hate giving away their levers of power.
Food is often used as the counter example, but IMO domestic production is less valuable than a multi year stockpile.
Further, unlike a direct subsidy it’s adding tax revenue.
nobody is going to stockpile food or consumer goods when you're demonized for charging more for them when the demand goes up. there's no way to do anything but lose money on it.
PS: At the extreme end Honey can be stored for thousands of years at room temperature.
Easier to image with a 1,000,000% tariff: nobody would actually pay the tariff, so there's no dividend to distribute. Yet, you get an economic impact.
You still get deadweight losses from lower tariff levels.
What do you mean by 'balancing wage differentials'?
Global trade is on of the best ways to balance wage differentials. That's how China had crazy catch-up growth in the last few decades.
(Another great way to help poor people get more productive and thus richer is open borders.)
If downstream customers want to de-risk, they should pay for it. Either by setting up their supply chains differently, or by outright purchasing insurance, etc.
If they choose not to engage in this expense, perhaps they are right, and just bearing the risk is overall a better trade-off? Who are we to tell other people what level of risk aversion they should have?
Of course, once the calamity hits everyone wishes they would have bought prepared or bought insurance. But that doesn't mean we should all go out and make our roofs asteroid impact proof, or never ever go out because we might break a leg.
I don't see a connection between tarrifs and risk in a supply chain. Infamously US autos which refused to adopt Tailorism or other cousin methodologies for reliability wound up being expensive crap compared to Japanese car makers. It is a peripheral variable at best or an irrelevant one at worst.
Tarriffs as a solutio resemble opportunistic timing to not let a crisis go to waste rather than addressing a root cause.
I am going to bookmark this thread in anticipation of this phenomenon.
"Nobody could have foreseen what would happen when the world’s second-largest economy went offline and completely shut down external logistics connections."
Exactly what they said about the housing bubble. Honestly, how many people on HN and elsewhere couldn't anticipate this? I think the main thing that has caught everyone by surprise is just how comically unprepared we are for this. And the overwhelming sentiment I've been getting from the memeplex is that this situation is entirely the fault of Trump, when he fired Obama's pandemic team. Not only is this not actually technically true, the idea or insinuation (dog-whistling) that the extension of that team would have mitigated this whole thing seems to be quite unlikely, to put it mildly. Oh yes, of course having this team in place would have improved things - but by how much, and under what counter-factual scenarios?
These are the discussions we need to have, but I don't think Western culture as it is is capable of having them. We need to wake up and realize the human ego is the root of all of these problems.
It is of course both. Global supply chains and JIT delivery have made us more fragile. But China reacted well - locked down a region of 60 M people - then sent in the resources we of 1.5 BN to stop the spread to the rest of the country. Now they are basically hanging on till a vacccine.
USA pandemic teams probably had similar plans - shutdown California for example - in other words steering away from the worst of the icebergs.
Is China's strategy "best"? Hard call to make - especially now. But it beats many many alternatives.
Also Trump 'dependence on China is a huge problem'.
Dependence on <x> (where <x> could be China or many other things) has been an obvious risk across numerous dimensions for a very long time now. Many of these ideas have been discussed here, although not in a manner befitting for the gravity of the matter.
That even on HN we are often unable to engage in unbiased, purely rational discussion has been another big systemic risk that I have been banging the drum about for months. It makes a person start to wonder: what will it take for people to wake up? Maybe it isn't even possible?
Companies already bear the costs and benefits of their resilience. So it's already internalised.
You could, however, pass a law that specifically allowed people to charge whatever prices they can get a customer to agree to pay; and ban all laws outlawing such pricing.
That way you would give companies an incentive to be especially resilient in the face of disruptions.
Right now, you are mostly not allowed to sell hand sanitiser for thousand dollars a bottle. So the incentives to become so resilient that you are still producing when everyone else has shut down and you can charge these kinds of prices, is kind of dulled.
Supply chain management is like 50%+ of all manufacturing industry. I think you must be responding to the idea of like a hospital not knowing where their masks come from- and I don't think thats the focus of the article.
Carefully sourcing parts is one thing, tracking the whole supply chain of where your suppliers get their materials is another.
if you know more companies / projects in this area, I would love to know. It's of course wiser and easier to do b2b in this space, but there's also the dual problem from the consumer side of getting to know the supply chain.
It would be so great to have a portal where I can scan a barcode and get to know the whole chain of production.
I haven't been at many companies where a customer paid us money specifically to build up capacity for them first. Most of the time I've had to ramp up, we had to pay for it out of investment dollars or scraped out of contracts specifically for deliverables. Even when we special-built a feature for a customer, we still had to find a way to generalize it for others to turn a profit on it, and that was out of pocket.
Apple has apparently paid a number of manufactures to get good at something in exchange for a short lockup period and a permanent discount on orders. Which I think is why when Intel tried to make their first direct Macbook competitor, it turned out their margins were razor thin compared to Apple's.
He could jump into the flow of parts and information for a specific printer model from 10 years ago. He knew the reasons for each steps like import tax avoidance, cost/benefit analysis of using one vendor/shipper/etc, or even that they used to have a specific engineer at that one factory who was amazing at QA and tolerance checking or something like that. When teams were behind due to supply chain issues, he would jump in to analyze their process. Sometimes that meant combining it with ongoing flows like "This factory here makes a part like that for product X, I'll get you a sample so you can adapt it into your product to rework."
He had immense company value and history committed to memory that he tried to pass before leaving as teams moved to India or China. But I doubt anyone at a decision making level was aware.
> He knew the reasons for each steps like import tax avoidance, cost/benefit analysis of using one vendor/shipper/etc, or even that they used to have a specific engineer at that one factory who was amazing at QA and tolerance checking or something like that.
Excellent example. Some of those you wouldn't be allowed to document in writing, even if you wanted to.
Except Walmart
Just want to add that this same story is playing out at the individual level right now, as well. Milk comes from supermarket shelves, not cows.
Relying on only one country seemed as foolish then as it seems now, but we haven't learned the lesson yet.
We have strategic reserves of petroleum, foodstocks, and other necessities. It is time to think about the same with medicines, medical supplies, and common household goods.
The conclusion from this is that, unless there is regulation directly addressing this, nothing will change, because the market forces are what they are.
In vast swaths of both the consumer and industrial economy, the supply chain bean counters have tolerated no argument for choosing anyone besides the low cost supplier.
Cost optimizations were the only rewarded metrics.
THIS.
My brother-in-law owns a company and they put in place a ton of redundancies after the 08' crash. They're in a specialized manufacturing. After 6-7 years of stability and some of their markets recovering and stabilizing, he started getting pressure from his two partners to cut the safety nets and re-invest it in supply chain improvements. He was against it saying the same thing, "This isn't a five or six year plan, it's a permanent plan to protect the company." In short, he was outvoted. The redundancies were removed and the money was re-invested in other areas. .
The last week basically saw their entire supply chain shut down, almost all of their customers shut down and yesterday they had to send everybody home and shut down themselves for the time being.
My brother in law texted me saying, "This is the worst fucking "I told you so" in my life, I'm not sure we can survive this." He's meeting with his partners this week to assess the damage and how long they can survive before they'll need an influx of capital to keep the lights on.
Had they kept all of their money tied up in their emergency plan, they would've been able to pivot to other suppliers and continue to serve their clients. Right now? They put all their eggs into one basket and it could very well kill the company.
A few examples:
1. the US has built up it’s oil producing capability. If the Saudi’s keep prices low, then everything will be mothballed. So the ecosystem of businesses and skilled staff supporting the US oil industry will massively degrade quite quickly. It can’t be ramped up quickly later.
2. Huawei. Massive shock of US sanctions. Can only be saved by amazing levels of support by Chinese govt.
3. Rare earth production. China took over the market, then shut down all exports. What producers were left and why did they still exist?
It's easy to look at Steve Jobs and Jeff Bezos and think that a sufficiently charismatic CEO can use his or her "reality distortion field" to hypnotize investors, but it doesn't work like that over the long run. The reason investors had such patience with Jobs and Bezos is because they were demonstrably increasing their companies' market share and profitability, respectively. Under Bezos, Amazon went from a niche seller of books to the largest e-commerce site and one of the largest retailers, online or off. Under Jobs, Apple went from a has-been computer company kept alive as a prop for Microsoft to wave at the DoJ to a leader in personal computing, consumer electronics and the most profitable corporation in history.
Do you think that shareholders would have kept Bezos and Jobs around if their strategies had not been delivering the tangible results, quarter after quarter, year after year? I think not. For proof, we can only look to Yahoo, which spent an enormous amount of time and money wooing Marissa Meyer from Google, only to ignominiously fire her 5 years later after she was unable to arrest Yahoo's declining profitability and relevance.
A CEO of a publicly traded corporation, especially a publicly traded corporation that is financial trouble, only has so long to demonstrate success, where "so long" is measured in months or, at most years, not decades. If the CEO cannot demonstrate tangible results within that time frame, he or she will be fired, no matter how powerful their "reality distortion field". CEOs cannot transcend the crowd-sourced incentive-based decision making of the market over the long term. What the can do is spin a good story that persuades the shareholders to leave them alone for a brief period of time as they attempt to make the necessary changes in order to improve or restore profitability. If they are unable to do so, they are summarily dismissed, and replaced with someone else who can tell a better story about how they're going to improve the profitability and efficiency of the firm.
No amount of Jeff Bezos or Steve Jobs charisma is going to be sufficient to persuade shareholders to accept a 10% penalty year after year in order to safeguard a little known, little understood part of the supply chain against an event that may or may not happen decades from now.
I agree with your conclusion, but I want to push back on the assertion that COVID19 was a "black swan". Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them. There were examples of similar events in the recent past (for example, SARS, MERS, H5N1 influenza, etc).
The reason markets are bad at dealing with pandemic preparation is the same reason that markets are bad at dealing with pollution. It's a collective action problem. The benefit of pandemic preparation is spread across society in a diffuse manner, whereas the costs are borne by the individual manufacturers and distributors who take on the increased transaction costs of dealing with three or four suppliers, when their competitors get away with only having one or two.
It's analogous to dumping untreated sewage in a river. Even if the executives at a want to install scrubbers, as long as it has a competitor who can manufacture goods or provide services more cheaply by dumping untreated sewage, the company cannot do so, because the costs incurred will put it at a competitive disadvantage, and it will lose business to its competitor. In the same way, even if executives understand that having a supply chain dependent on a few key suppliers is a potential liability, they can't diversify as long as those suppliers are the lowest cost option, and moving away would result in them providing the same goods and services at a higher cost than their competition.
Black swans aren't necessarily unpredicted. In fact they are usually predicted by a few people, but the predictions run so counter to the interests of established set of systems and models, that they are ignored.
In the book, Taleb actually spins a story about an individual who spends his entire life predicting and preparing for an invasion by barbarians, but is ignored, and upon his deathbed, the invasion happens.
People are constantly making predictions, many of which are very implausible, but it's never clear when one of those will turn into a black swan.
The pandemics you listed were different from this one in that they were not nearly as transmissible, even though some were deadlier on an individual level. A lot of people got used to thinking: "that kind of stuff only happens in those kind of countries, not here".
An earthquake in Kansas, on the other hand, would be a black swan. Kansas is not in what we currently understand to be a seismically active region, and thus I don't think it's reasonable to expect Kansas to have the same level of earthquake preparation as California (and vice versa for tornadoes).
In this instance, I think the pandemic was a reasonable thing to anticipate (even if no one could have predicted the actual timing or cause). There were airborne viruses which had made the jump to humans from a wild reservoir in the past. While previous examples were more deadly and less transmissible, the current outbreak was not, as I understand it, far outside the confidence intervals that epidemiologists predicted.
An example of a black swan in this instance would have been an organism that was as contagious as SARS-NCOV-2, but as deadly as Ebola. That would have broken many of our models (which hold that transmissibility is inversely correlated with deadliness). It would have caused us to significantly reconsider our models of viral evolution and disease mechanisms. In contrast, the current outbreak hasn't really caused anyone to reconsider their models of epidemiology. It's played out largely as many epidemiologists warned.
For that reason, I don't think the current outbreak is a black swan, and I think that many of the people calling it a black swan are doing so as an excuse to dodge responsibility for failing to prepare. It's as if I failed to secure my shelves in California, and then when an earthquake hit, and all my crockery spilled to the floor, I claimed that it was a "black swan", because no one could have predicted the specific timing of this earthquake.
One of most catastrophic earthquakes in recorded American history took place in 1811 in a place called New Madrid, Missouri, not far from Kansas. I'd predict that it's going to happen there again.
If it does, I'd still call it a black swan, since the systemic incentives to not prepare for such an earthquake in that area are probably optimized for the short-term.
I agree it's a good idea but we should be clear that we are talking about making things more global and more interdependent.
We should also avoid the impression that everyone depends entirely on China -- a lot of big companies already have global supply chains with some redundancy.
In any case, global supply chains can't withstand a global pandemic that is causing business to slow down in every major country in the world.
A extreme example I have heard of (could of course be false) is that some fish from the north parts of Norway get sent to be processed and packaged in china in order to be imported back at the same place where it was once fished.
If we want more redundancy by encouraging more spread out production there would need to be something to balance the desire to just move production where labour is cheapest.
It's a classic collective action problem. Diversification offers a diffuse benefit to everyone, but the costs are borne by the individual firms that put in the effort to train workers, document tacit knowledge, refactor supply chains, etc. As a result, without a central coordinating authority, firms will not diversify, because to do so would be to move away from the Nash equilibrium that incentivizes them to use the cheapest/fastest/most specialized supplier at the cost of diversification.
That's a genuine question, by the way. I'm curious.
Today the supplier can not only sell to the company but to the consumers directly significantly cutting company's ability to level the price so the company is forced to drop the more expensive suppliers
There is an incentive for now. When the current supply shock goes away, the old market pressures will reassert themselves, and those companies whose supply chains are narrowly focused on the lowest-cost/highest-quality producers at the expense of diversification will outcompete those whose supply chains are diversified.
The parent questioner is asking, in essence, how can we turn this incentive from a one-time shock into a continued incentive to maintain diversification? As it currently stands shocks are far too unpredictable and episodic to serve as a market incentive. In practice, people don't diversify unless there's a constant and ongoing pressure for them to do so. It's much easier and cheaper to find a good supplier and rely on them as much as possible.
We don't generally make our roofs asteroid impact proof, either.
I'm not sure if this is practical to actually implement, but if you increase tariffs based on how many of each item you're shipping, it would eventually be cheaper to manufacture some of them in the United States.
Example, first million widgets have no tariff. Next 500,000 are $0.02 per widget. Next 500,000 are $0.03 per widget and now it's cheaper to make those last 500,000 in the US.
And for companies with smaller runs, like 50,000 widgets, the volume savings might not make up the extra cost of dealing with Chinese manufacturing (shipping, time zones, language barriers, etc.)
The biggest trouble would be setting those values at reasonable levels based on different industries. Not sure if you could actually do that in a way that scaled to EVERYTHING manufactured in China.
Reminds me of the concept of "protecting players from themselves" (https://www.youtube.com/watch?v=7L8vAGGitr8)
Good idea.
You lose some efficiency but gain in resilience. Nowadays big internet companies have all sorts of Disaster Recovery plans.
Are you keeping your own data center in addition to the AWS/GCP/Azure? Because that's the exact same premise.
But I can see how you came to that reading, and it did give me a chuckle.
The thing is that these dependencies are a feature and not a bug on several levels, both in terms of trade promoting peace and the efficency involved. Put the should we philosophical questions aside and there are a few precedents to look at and hypothetical solutions.
One way is through subsidies for deliberate overproduction are the way done for food - but that is also a market where the fungibility and nutrition encourages varierty to some degree. Again it is inefficiency by definition - generally done for things where it is believed/claimed to be better to have the waste than running out.
Another is in "national security" pork where it is often more an accident of the pretext than neccessity. Needing American screws for DoD gear.
Some sort of international robustness treaty/trade deal could be devised per sector that say any country may subsidize or tarriff industries up to say N% of their basic demand but once it gets beyond that they need to stop or start tapering off, perhaps with varied threshholds. That would no doubt be a bed of weeds as everyone tries to privledge their own interests and plays games with classifications.
The reality is that you have wave after wave of consolidation. Often the savings if any are nebulous. Most of the issues with manufacturing in western countries and the US in particular are accounting and tax based.
Unless you have vast amount of clients and money there are almost no incentives for you to build from ground up your own supply chain. Mid size businesses, when very successful, manage to break away from a 3rd party factory and build their own. That's a massive win. Most of the raw materials will come from downstream providers and the task to get either redundancy or break away from them is going to cost you a lot of money and business margins.
What we're seeing is conflicting priorities.
After things normalize, we'll probably go back to just-in-time, full capacity production.
But there is a real and separate issue to debate w.r.t. globalization, and it has to do with international politics, and how safe it is to put one's well-being in the hands of a rival. Redundancy and efficiency have nothing to do with this argument.
Redundancy is in direct opposition to efficiency. You're always going to move faster and do it cheaper building a singleton, in the non-digital world where there are real costs to duplication.
In driving towards efficiency, redundancy presents no immediate benefit, introduces measurable costs, and so is actively selected against at every stage.
I'm not saying this should be the case. The drawbacks on long time scales are... well, exactly what we're seeing right now. But it does explain the current situation.
It's not a binary 'either redundancy or efficiency'.
Also, brands with a reputation for reliability can and do charge more.
His has not been a popular narrative among the Cambridge intelligentsia, who skew pro-corporate and anti-producer.
[1] (2010) "Innovation Killers: How Financial Tools Destroy Your Capacity to do New Things"
[2] (2012) "Producing Prosperity: Why America Needs a Manufacturing Renaissance"
Edit: alternatively, countries could be much more trigger-happy when it comes to banning flights from potentially infected areas where some kind of virus starts - basically a lot of false alarms. Companies would simply have to adapt.
People already invest on much shorter timelines than 30 years.
What if Boeing goes bankrupt and the only reliable plane makers are PRC companies (usually state-backed, even if it's not explicit)?
If the US wants to help out US manufactures for strategic regions, it can apply the usual "made in USA" government purchasing rules, or maybe a tariff.
Boeing's efforts to consolidate the entire US aerospace industry into one company have hurt our society.
https://en.wikipedia.org/wiki/Category:Boeing_mergers_and_ac...
Where that division line might be isn't clear to me. For instance the 737 is both a civilian airliner and a military maritime patrol aircraft (as the P-8: https://en.wikipedia.org/wiki/Boeing_P-8_Poseidon)
https://www.nytimes.com/reuters/2020/03/18/business/18reuter...
That's correct. It's a market failure that needs to be remedied through law and regulation.
Hyper-specialist species can amazingly exploit their niche, but they're the first suffer and go extinct when things get disrupted. It's the generalists that survive.
> From tax cuts to relaxed regulations to tariffs, each of President Trump’s economic initiatives is based on a promise: to set off a wave of investment and bring back jobs that the president says the United States has lost to foreign countries.
https://www.nytimes.com/2019/08/13/business/economy/donald-t...
In industries where innovation matters, how do you regulate for producing a good enough product?
Could you regulate Intel to fix their 10nm process?
Do you want a laptop with the reliability of a Fiat, or the reliability of a Toyota?
Not saying it is impossible, but countries quickly run inito problems when their home produced goods are strictly inferior to the imported goods on price or quality or other metrics.
The market, as you note, selects for hyper-specialists, but crises aren't kind to them.
Strictly inferior home-produced goods are better than no goods at all, and the capability to produce them may have systemic benefits (in flexibility, resilience, avoiding certain kinds of path dependence and local maxima) that are not visible when looking at the goods in isolation.
What law and regulation can do is keep a nation on a more generalist footing, and keep it from hyper-specializing too much.
It's more difficult than that. Links in the supply chain aren't independent. Supply and demand must balance. Chinese manufacturing is spinning back up just as European and US demand is dropping. This will cause further damage to the companies on the supply side. And as Europe and US spin their economies back up, China may not be able to meet the growing demand in full. It'll take a while before this reaches something resembling an equilibrium.
https://www.wsj.com/articles/viral-outbreaks-once-rare-becom...
[0] https://ykknorthamerica.com/the-ykk-difference/vertical-inte...
The claim about relying on absolutely nobody else sounds like an exaggeration though. Even if we limit the scope to consumables, I don't think they produce their machines' lubricants.
Vertical integration stories like this, or Ford's Rouge plant[1], make me reconsider my general predisposition towards "buy" in the software space.
For many years, I've argued against building software you can easily buy or download, but maybe reinventing the wheel is not so terrible if someone wants a company to be long-lived. Primary benefit is the software can be customized for the company's specific needs and not held back by other companies' software, of course. But even if using open source, it can help avoid fad software trends, or the whiplash-speed changing of standard tools/libraries (e.g. the open-source client-side Javascript world).
[1] - https://en.wikipedia.org/wiki/Ford_River_Rouge_Complex
Schwinn was another great example of this back in it's heyday. The Chicago factory could essentially produce every part of a bicycle from 1010 steel.
The issue with this model for a lot of companies is that a high level of vertical integration can make it very difficult to pivot. In the case of Schwinn, the change in consumer taste towards lighter bicycles/frames was not something they could adjust to in a cost effective manner; the lighter alloys other companies were beginning to use at the time were not usable in their production process. There were many other factors in their downturn but that was a big one.
> For many years, I've argued against building software you can easily buy or download, but maybe reinventing the wheel is not so terrible if someone wants a company to be long-lived. Primary benefit is the software can be customized for the company's specific needs and not held back by other companies' software, of course. But even if using open source, it can help avoid fad software trends, or the whiplash-speed changing of standard tools/libraries (e.g. the open-source client-side Javascript world).
There's two sides to the 'buy/build' camp that seem oft ignored; The first is that 'build' is a huge cost unknown (i.e. risk) to the business. Maybe you'll build the right solution. Or, maybe it becomes a terrifying project that was put together so haphazardly that they wind up taking the developer's machine and put it in the server room, because they've run out of time and the code doesn't work anywhere else.
But the second... is that a lot of the off-the-shelf software has a specific use case. And the more off-the-beaten-path your business is, the higher the likelihood that you'll have to write customizations to actually meet the requirements. Those have their own set of risks, and I've seen projects where teams have wound up tossing the 'tool purchased by the business' and writing their own thing because it wound up being cheaper to do that than integrate with the muddled mess the company signed a fools bargain contract for (incomplete, poorly documented AGPL clone of a very popular Apache licensed product.)
It's like everything else though; companies want to 'externalize' the cost/risk. And sometimes that works. Sometimes, you have a good contract, with the right carrot+stick SLAs with a vendor, and having that peace of mind that they -will- respond within 24 hours and not use up your own internal developers troubleshooting the in house leetcode.
One of my favorite examples of this paradigm in practice is Job scheduling and/or queueing. Every company I've worked at has had their own 'opinionated' way of doing job. At one, where the requirements were very well defined, the in house library was hilariously bare code and ran on windows scheduled tasks, directories-as-output and at-first-glance terrifying oracle sprocs. But... when you looked at the actual requirements? it did exactly what it had to and no more. The output had to go to FTP, so who cared if it used directories for output as the default? And quite frankly it worked and was simple enough any developer worth their salt could maintain the structure/paradigm.
At another org, that loved to buy/use things off the shelf, I lost many a Sunday to bizarre problems where the combination of Quartz.NET wrappers, MassTransit wrappers, RabbitMQ wrappers.... secondary database queue tables.... just didn't play nice together and would deadlock on the server.
They don't make the computers, fiber optics, switches, exchanges, or software that their web site requires to run. They don't own the fleet of trucks, boats, and planes required to get their product to their customers - or their raw materials from plant to plant. They likely use rubber mats in their plants but I don't think they have a rubber plant. Unless they use outhouses I'm pretty sure they don't make toilets and sinks and plumbing. I don't know if they produce their own electricity but I'm sure they didn't build a generating plant from scratch....and on and on it can go.
If you haven't read it, search for the essay - I, Pencil - I'm sure YKK uses pencils as well.
The point is noone is even remotely close to being their own supply chain every one is deeply dependent.
Because they don't need to. The quality of their network setup has no, utterly no, relationship to the quality of the final product - the machines and materials however do have such a relationship and therefore it's done in-house.
Additionally this vertical integration removes the incentive for a supplier to cut corners somewhere for more profit - which is something that Tesla and SpaceX also have discovered and apply it wherever they can.
However, my point is and was that controlling your whole supply chain is impossible.
Computers are critical to everyone's supply chain, including YKKs. If they aren't and YKK can fall back to pen, pencil, and paper then they are dependent on those manufacturers and industries.
Again every business and every one is DEEPLY dependent on hundreds if not thousands of others.
Has some background about gelatine (not breeding).
Giving them time to find alternative suppliers for things like computers and pencils.
If they instead depended on consumables like say zipper teeth, they would have to shut down almost immediately in the case of a supply chain interuption.
We had an argument in a CS class once about what the most "pervasive technology" in the room was. We were examining claims that "computing would become so pervasive and ubiquitous that it would become invisible" like electricity and that zipper.
The reason it won was because we could count more of them than any other piece of tech in the room. Every person had more than they thought -- often as many as half a dozen between their pants and schoolbag.
Plenty of companies try to source their own (Levi's is the first to come to mind), but the best companies all use YKK zippers because they know. If it doesn't say YKK on it, it's not a YKK zipper.
ITW Nexus did something similar with fasteners.
You aren't describing a supply-chain. They don't lose a computer for each item sold. The difference is that they can have a disruption in their infrastructure suppliers but continue to sell products at a degraded pace. If they lose all access to a raw material (supply chain), they can't sell any more product once they are out of supplies.
The problem is our tools to addressing this are either (a) some sort of tariff arrangement, which will almost certainly be political footballs far more than they will address any real problem, or (b) some regulatory/compliance arrangement, where regulated industries will have to sift through billions of dollars of compliance paperwork annually describing their supply chains, and which may be subject to the scare-of-the-month and international political football. Neither is ideal.
Robotic or biological?
Perhaps COVID-19 is a chaos-monkey?
This really should be implemented!
That does two things. One, no more cost advantage to global manufacturing in whatever place has the least respect for the environment, which lets others compete better and removes the race to the bottom. Two, there are lots of different and potentially conflicting rules everywhere, so then you get more specialization as there is an advantage to smaller companies that only comply with the rules for the markets where they're selling.
However the OP meant more than that: that the VW workers, employed for example in Mexico, who assemble cars for US export would get the same worker rights as they would get in the USA.
And the same would hold for pollution at the factory and so on.
The reality is much of our economy is built off the backs of essentially slave labor. And we're all guilty of benefiting from it.
We should qualify the term "irresponsible" here:
1) If we somehow avoid events like covid19 for an entire decade (for example), in retrospect the self-imposed inefficiencies could be called "irresponsible". I think the real issue is that there are costs associated with guessing wrong in either direction regarding when these events will occur.
2) Just a guess, but I would think having interdependent supply chains reduces the chances that those countries will go to war. Giving up that benefit could also be seen as irresponsible.
I'm frankly astounded that exclusively outsourced supply chains were ever a serious consideration. Yes they're more efficient, but efficiency isn't the only consideration. Imagine if someone seriously came forward to suggest China should also produce all of our food. It's nuts.
I blame the continued financialization of our economy which leads to an absurd obsession with efficiency above all other considerations. It's yet one more example of borrowing against the future that has led to many of the recent economic crises.
Edit: we regulate risk in financial sectors, like the debt ratio, and supply chain resiliency is simply another risk assessment. I think more comprehensive legislation surrounding corporate risk taking will ultimately be needed.
With a lot of manufactured items demand is far more elastic and any given manufactured item isn't necessarily a substitute for any other. If Intel or AMD overproduces higher power desktop CPUs but there's market demand for low power laptop CPUs or ARM SoCs...the oversupply isn't going to spur any demand. Even if the oversupply depresses prices on those chips and desktop systems, they're not portable or phones so there's no useful substitution.
Managing production volumes and forecasting demand is a huge aspect of modern manufacturing. Responding to demand quickly is one of the reasons manufacturing consolidates geographically. If a production line needs Component X at volume Y to keep moving, they can't wait weeks to get that supply. Too much surplus of components is also a problem because those all need to be stored until used. So the most economical configuration tends to be shipments of sub components feed almost directly into component manufacture lines that feed into packaging which feeds into shipment and distribution. That's difficult or impossible to accomplish if your supply chain is geographically dispersed.
Slower and less dynamic supply chains aren't necessarily better at responding to crises since the production schedule of whatever will have been set well before the onset of whatever crisis. Responding to the crises then takes longer since extant component supplies likely don't match the crisis production needs.
You can see this right now with industries the produce regulated/qualified products like medical supplies. A random factory can't just supply medical grade components. Without proper quality controls, sterilization, or batch tracking those items can end up more dangerous than not having them. Face masks that are ineffective due to manufacturing issues can get healthcare workers sick or spread disease to uninfected but at risk populations.
I'm not saying JIT manufacturing is a panacea or that it's a good thing China has such a lions share of commodity goods manufacturing. But the solution to supply chain issues is more complicated than just building factories. Many companies are also simply unwilling to take a profit hit by diversifying their supply chains or moving to longer production cycles.
This is completely obvious when you see how Hurricane Maria led to drug shortages because Puerto Rico was the sole produce of some critical drugs, or how China recently had to halt outgoing shipments and everyone else in the world started running out of masks and medical equipment.
> But the solution to supply chain issues is more complicated than just building factories.
Right, it's building factories in the right places, and ensuring they can tolerate disruptions.
> Many companies are also simply unwilling to take a profit hit by diversifying their supply chains or moving to longer production cycles.
Sure, just like banks and investment firms would be unwilling to have more robust debt ratios in order to improve their returns when all is well, if we didn't force them to maintain a less risky debt ratio in order to avoid catastrophes when all is not well.
Manufacturing isn't meaningfully different in this respect, it's all about managing risk. Corporations should have more responsibilities to quantify and manage risks like this.
If manufacturing supply chains are more geographically dispersed they are automatically slower and less dynamic. They're not necessarily more robust either. As soon as the supply chain involves moving materials farther than a few hour drive by truck it becomes constrained by modes of transport that can't be easily dispersed (rail, air, water) or reprioritized.
> Right, it's building factories in the right places, and ensuring they can tolerate disruptions.
As demonstrated by...all of history since the beginning of the Industrial Revolution the right location for a factory today is not necessarily the right location for tomorrow. Relocating factories is expensive and difficult in the best circumstances. Every factory has a logistics train attached to it; not just equipment and trained workers but power requirements, waste disposal, physical siting requirements, and dozens of other factors. Some are easy to uproot and others are not.
Again, I'm not arguing that China should just make everything and all factories should be located next to one another. I am saying that manufacturing is not like AWS. You can't just spin up new instances when you run out of capacity. You can't just move everything to a new factory closer to some resource or retool a factory for a totally different type of production with a deploy script.
> Corporations should have more responsibilities to quantify and manage risks like this.
Some do and several industries are regulated when it comes to sourcing. Defense contractors have all sorts of supply chain requirements. More industries can have supply chain security requirements but then end products will get more expensive. The added cost will get pushed to consumers. So you can optimize for the common case where pandemics are rare but manufacturing tends towards consolidation and low cost or you can optimize for robustness and everything manufactured carries with it the amortized cost of that more robust but expensive supply chain. Unless regulation forces all manufactured items to have a similarly robust supply chain and all manufacturers have the same burden, there's a competitive advantage to having a supply chain more susceptible to rare disruption but far less expensive.
You keep hammering on this geographic dispersal, but as far as I can see, no one is suggesting geographically dispersing or relocation supply chains, but are instead suggesting replicating supply chains in different geographical locations. You know, the standard approach to adding resiliency to literally any system.
> Some do and several industries are regulated when it comes to sourcing. [...] there's a competitive advantage to having a supply chain more susceptible to rare disruption but far less expensive.
Yes, and I'm suggesting that a more comprehensive legal approach where corporations providing critical goods or services should have to perform risk assessments and ensure a maximum tolerable risk. Everyone recognizes the competitive advantage of ignoring risk. I described it in my very first post to which you replied, and I then said improved risk management should be legislated.
When I was a know-it-all college student I would complain about farm subsidies and how they're inefficient and unfair to tax payers, etc.
But he would mention that America should never have a food shortage because of them. We've never outsourced our food to China or OPEC.
And now I'm really seeing the wisdom in that. For essential goods, like food, medicine, maybe energy, it makes sense to keep some production local.
Having the supply chain less globalized doesn't mean there is an excess. Now, there is a shortage of surgical masks, but that's because the demand is too high, not just because they are made in China.
You have to balance efficiency and reliability. And normally, the global supply chain is very efficient, and surprisingly reliable. Black swan events happen regularly and besides a few price hikes and some company coming and going, business continues as usual. A de-globalized supply chain will certainly be able to deal with such event better, but at the expense of permanent inefficiencies.
Of course, right now, it is far from "business as usual", but that's because there is a freaking virus in the air, and if you catch it, you may die. Still, you can still buy food, and the essential shortages are of things that are directly related to the disease, like masks, hand sanitizers, and respirators.
And governments and companies alike do plan for shortages. Most countries produce more food than necessary to account for the risk of famine. There is a reserve of essential medical items, and it is being used right now... within reason.
One thing is for sure, it is too soon to draw conclusions.
Also, isn't competition a good thing? If the companies of the world had dual supply chains, in China and elsewhere, that would foster competition, which isn't just good for a lower price, but also for higher quality.
Do you want a single server handle the load, located in China?
Or a decentralized, load balanced system?
9bn users.
Go.
A more apt comparison would be between cloud providers (which are the supply chains of modern IT) - do you want to stay at AWS's mercy, or expand to Azure and GCP as well? Maybe you should consider Linode or DigitalOcean as well? There are pros and cons to those approaches - both in experiences, pricing, innovation, etc. The same applies to global supply chains.
Once you have that legibility, the extra step of snipping the globalized supply chains seems unnecessary. Some businesses will plan to maintain continuity with all international shipping stopped, and a few will receive subsidies and mandates to do so. Others won’t, and that’s fine too; there’s a ton of value in making our lives better even in ways that can’t be sustained during a crisis. (It’s worth noting that international shipping in everything but coronavirus-fighting medical equipment hasn’t stopped during the currrent crisis.)
There are a number of efforts to make supply chains in all sorts of sectors more transparent using blockchain-like protocols. So this will hopefully improve in the future.
Blockchain is a different beast. And most companies wouldn't like the full transparency that comes with it. Decentralized ledgers would result in a lot transparency for everyone. And that trust building is a main issue. That, and that the information flow (blockchain) has to be always sychronized with the physical flow (goods).
There would have been changes necessary. RFID chips fall as electronics under RoHS and probably regional/national recycling regulation which means that their introduction into products would cause an enormous overhead. Additionally chips cost at least 10ct each in bulk which means for a lot of 1m units you would lose at least 100k $ in profit (or offer the product for more money, which is ... difficult to do when dealing e.g. with Walmart).
The only way RFID could have taken off would have been if governments mandated their usage.
Better barcode reading allows a lot of the same advantages for none of the marginal cost or dealing with extra regulation. Even handheld barcode scanners are starting to use cameras rather than lasers because they're more flexible.
None of these things are true of supply chain problems. All it adds vs bog-ordinary B2B protocols is the ability to waste electricity on a galactic scale, instead of a merely planetary one.
https://brandservices.amazon.com/transparency
(Not employed by Amazon, but work with many Amazon sellers, am an Amazon seller)
I'm in the situation of being able to buy whatever luxury goods I want, but getting staples like canned meat and bread and rice and toilet paper requires lining up, virtually or physically.
This is true of financial companies too. For example, banks that are run to survive rare events like global pandemic or world war cannot compete with banks that ignore the possibility of such events during normal times.
The obvious question is, should societies impose limits on competition to ensure there is always a minimum baseline level of redundancy in the economy, and if so, what kinds of limits? I don't know of any obviously good answers to this question.
[a] See, for example, https://news.ycombinator.com/item?id=22628239 and https://news.ycombinator.com/item?id=22628157
The opposite can't be allowed to continue. Spending heaps on stock buybacks to then months later be completely out of cash.
> Take McDonald’s. With $21.1 billion in revenue last year, it ended 2019 with only $898.5 million in cash on its balance sheet, a little more than two weeks’ worth of sales. Considering that the fast-food chain, which owns more than 2,600 stores, franchises 36,000 more and employs 205,000 people, generated $5.7 billion in free cash flow last year, it could have as much cash as it wants. Instead, McDonalds’ bought back $4.9 billion worth of stock in 2019 and paid another $3.6 billion for its dividend, almost exactly the $3.24 billion the company borrowed last year.
This is a joke. It borrowed 3.2 billion to pay a 3.6 billion dividend? And now it's CEO is meeting directly with the president to argue how enforcing paid sick time off due to coronavirus is a bad idea because it will hurt businesses too much. The system is so broken there are barely words.
https://www.cnbc.com/2020/03/17/crash-shows-major-corporatio...
of all the companies Isaw, from insideand the outside, in my lifeso far, only the rare minority treated supply chain management and logistics as anything else than cost centers. If that perception changes, supply chains will become more robust. Because all the points that are now visible for everyone due to covid-19 are kind of well known in the supply chain community.
That being said, i don't think global supply chain will go away. After, they survived two world wars so far. And the economic upside of specialization is simply to big to ignore. Supply chans have to become more robust, especially for things needed for events and crisis like we see now. And that part was kind of neglected.
The more serious, but harder to deal with, issue is that globalization lets companies indirectly exploit labor and environment in a way that their home region would not allow. Until this is sufficiently economically disincentivized, it will continue.
These analogies are no where in the current paradigm, but if we have them, we could quickly allocate work across the manufacturing space to get stuff made far quicker. The material part of tool up (cutting molds, etc.) only takes days if you parallelize it, whereas the human aspect of dialing in the machines, etc. is where all the time goes.
Here's my proposal for what a more software-like engineering / manufacturing system would look like:
https://www.slideshare.net/nickpinkston/the-future-of-tools-...
https://www.youtube.com/watch?v=oXk1O6biJSE
Would love your thoughts. (and yes, eventually I will write all of this up, but there's a lot to get out, and I've been focused on building)
I mean, China was the first one affected by this, and after a few weeks of covering up (something western countries like the US also engaged in despite having already witnesses the negative effects of COVID in other countries), China took swift and drastic action (the kind which other countries may not even be able to do legally) and got the situation under control.
The US, on the other hand, is gonna be shut for months, and if the global supply chain was dependent on the US we would likely have been even more screwed.
And even if we create redundancies in the US, the redundancies need to stay competitive. Otherwise, we will just repeat the sad stories of the rare earth industry, the solar energy industry, or the electronic industry.
> But over the past decade, we have had a number of black swan events.
which links to this: https://sloanreview.mit.edu/article/the-science-of-managing-...
> To a risk manager, “black swan” phenomena are highly unlikely events that have massive impacts on a business or society on the rare occasions they occur.
But the whole point of the "Black Swans" is that they are both unpredictable and we forget about or rationalize them away after the fact.
https://en.wikipedia.org/wiki/Black_swan_theory
Pandemics aren't unpredictable. This virus isn't a black swan it's just a large white swan.
If we manage to cope with it well enough to keep things more-or-less stable and then forget about it then it's a black swan.
- - - -
We could and should know better. You watch Star Trek and they're always beaming down to random planets in their shirt-sleeves, no space suits. Meanwhile, in the real world, we are expanding our "attack surface" (there are more of these viruses out there, as we invade more wild areas we will encounter more viruses) while weakening our systemic defenses (cheap international travel, extended supply chains).
There's a philosophy on international politics that basically posits that countries that don't share get jealous neighbors. I forget the line but it's something to the effect of, "Either goods cross your borders or soldiers will".
Instead, as someone else suggested, it's supply chain optimization that's the problem. But when you have a company that's making 20% margins, an 8% gain in margins by running right at the ragged edge would be pretty damned tempting. And if your competitors do it and you don't?
I think at the end of the day we are all to blame a little bit. And I proposed in the first article of this sort that it might be a good idea if Congressional pork were more evenly distributed throughout infrastructure and logistics instead of being concentrated entirely in Defense.
What we should be wary about is Single Points of Failure but we should be worried about that regardless of what the supply chain looks like.
Perhaps it's time now for the "globalized supply chain" of higher education to go online.
A recent hacker news article talked about the precipitous decline in applications for on-campus business school degrees. If that trend continues, maybe future MBA's can lead the way on this one.
It's a good time to invest in research about knowledge protection and flexible production. It's also a good time to invest in emergency production capacity (best if it's of the flexible kind) by the government, most likely inside the military. (It may also be a good time for most countries to rethink the role of the military.)
But we will not adopt suboptimal methods on the private economy. It doesn't work that way.
It does. Many business in many natiins are encouraged or forced to remain domestic for strategic reasons. Eg why were car companies in US bailed out. Ports are very restricted. Semiconductors. Farmland. Aero industry. Steel manufacturing etc.
This is often done for security rational. And what nations consider 'for security' may well expand post Coronavirus.
Most supply chain analysis focus on cost/location/scale (this one too), but ignore the manufacturing and engineering skills that are accumulated from experience, which are much harder to replace. Countries level up to make themselves more valuable. And the cost v quality tradeoff is really hard to figure out.
Apple's failing foray into India's supply chain a few years ago is a case in point [0]. I've written about this too in an India and China comparative context when it comes to Apple [1]. Tim Cook said recently on TV that he's not leaving China anytime soon [2].
Not everyone is Apple. How do you think about the tradeoff depends on your business model. But rushing to "rethink" something as complex as global supply chain, because of an unrelated, intervening event, however severe, seems imprudent to me.
[0] https://www.theinformation.com/articles/inside-apples-search...
[1] https://interconnected.blog/leaving-china-supply-chain-a-pip...
[2] https://www.youtube.com/watch?v=rsDU-QsfkX4&feature=emb_logo
...in order to understand systemic risk in the globalised economy, account must be taken of how growing complexity (interconnectedness, interdependence and the speed of processes), the de-localisation of production and concentration within key pillars of the globalised economy have magnified global vulnerability and opened up the possibility of a rapid and large-scale collapse. ‘Collapse’ in this sense means the irreversible loss of socio-economic complexity which fundamentally transforms the nature of the economy. These crucial issues have not been recognised by policy-makers nor are they reflected in economic thinking or modelling....
https://www.feasta.org/2012/06/17/trade-off-financial-system...
"Hey guys, wait. Is neoliberalism actually a really stupid idea??"
As the government will swoop in and save the companies that are large enough, there is little risk for them, so why would they spend enormous amounts on mitigating that risk?
Maybe Executives should be paid with very long vesting schedules like 10 yrs? (vests even if no longer employed...)
Thus what economist the current economy need and what the environment need is disconnected and not in harmony.
We need to reinvent into a circular environmentally friendly economy where we put the environment first.
But it's not unique to Trump - Sanders also makes similar points wrt globalization.
https://en.m.wikipedia.org/wiki/Betteridge%27s_law_of_headli...
If we look at history, we see tiny, continuous improvements in reaction to bad events are what have led to the relative stability of modern life. Bad thing happens, we figure out the (usually small) root cause, then we stop it.
For example, when the automobile emerged, we learned that allowing people to drive without rules resulted in gridlock and frequent crashes. Did we ban automobiles altogether? No. We created regulations (traffic rules), and improved the issue.
Then we then learned that more people die in car crashes if they have nothing protecting their body in a crash, so we created seatbelts. Then we learned they still needed cranial protection in a crash. We created airbags, and improved the issue. And so on.
After coronavirus, the solution is not to lock down global supply chains and force everybody to stay indoors forever. The solution is easy. We simply change regulations and practice around the storage of certain animal species. Until the next thing comes along, and we tweak our model of the world again to address it.
This is not complicated. Human life is one giant continuous improvement model.
Right now, since China is ahead of the curve, it is valuable to be globalized in many respects. But it is not enough.
And to be clear, this is targeted at the country's government, and never its people. The government needs to be held accountable.
Imagine China or the US without any need for an external country, their behavior as citizens of the world would be 10 times worse.
Slowly, but China 2025 made a lot of people fear it.
So that means we have to start looking at local resiliency and what that means instead; arguably this is where parts of the environmental movement are way ahead, such as the "transition towns" movement. And anti-consumerism in general: there's no supply chain for something you don't buy.