I feel like the problem is less that supply chains are globalized, and more that they aren't redundant. By that I mean, there's too much reliance on China as the primary producer/exporter for countless industries and products. Having just one nation account for such a large share of manufacturing introduces single points of failure. It would be wise to have multiple sources for any given good, especially if it's essential.
In my experience, it's not that companies are choosing any one strategy over another. It's more that companies have no idea what their supply chain actually looks like. Only that the widgets show up at their loading dock every week, and that the shipments have always been reliable in the past, so that there's no reason to look any further.
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.)
This is it 100%. I work at a major financial institution and we invest ridiculous amounts of money, effort and, frankly, delay, in understanding our supply chain, its security posture and risk management model. It's a unbelievably gargantuan effort and if it weren't for the scary shit that we find all the time one could easily argue it's a waste.
> 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.
I mean, imagine you have a 3 year contract with a supplier, and when you go to renew they get cagey and seem to be giving you the runaround. Later you find out that it's because they already signed a contract with one of your competitors that begins the day after your old contract expires.
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.
- 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.
I read when having bicycle frames made in Taiwan you get the best price/quality ratio if you have a permanent onsite observer in the factory. That guy doesn't really do anything but they wont cut corners if he is around.
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.
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.
> 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.
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.
They run the gamut. Lack of a viable risk management program, lack of resiliency planning and testing, poor operational and change management controls, poor visibility and response planning for security events, poor SDLC security, etc. etc. The requirements vary based on our exposure.
My dad used to work for a big tech OEM and retired a few years back. He had years of supply chain flows, contacts, locations, and more for his old company in notes, his head, and Visio and was hired through layoffs for that knowledge. I think in like 2006 he was picked up by a manager who had heard him speak up in a meeting years before to explain a step in a chain and knew he knew what the company was able to do.
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.
They have a complete idea, its just that the globalized option is cheaper, even fractions of pennies cheaper, and is directly measured in the profit margin, while the risk, if it shows up at all, is buried in the footnote of a 10-Q or annual report.
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?
Entities tend strongly to externalise risks unless compelled to do otherwise.
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.
> 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?
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.
that's also where i've landed on the tariffs issue. theoretically a bad idea, but has practical uses beyond purely economic considerations.
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.
I am convinced a low tariff of ~3% on all goods and services to every country is a good idea. But that’s never what happens, you get a huge mix of zero to insanity based on which industries have political power. As such a blanket ban on tariffs became a rallying cry.
Food is often used as the counter example, but IMO domestic production is less valuable than a multi year stockpile.
> domestic production is less valuable than a multi year stockpile
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.
that's why stockpiles should be kept by government. they don't need to make money on it. should be easy enough, have 6 months worth in a warehouse, ship the oldest out the front of the warehouse to the supply chain while topping up with new product at the back. rotating it like this acts like a buffer,rather than something that is only accessed in dire emergencies and would be out of date or less effective due to age. the relatively small costs of a warehouse would be negligible
Governments used to maintain grain stockpiles in case of famine. A modern equivalent could be run for vastly less than current farm subsidies. Especially if stocks where rotated and mostly refilled in years of massive surplus.
PS: At the extreme end Honey can be stored for thousands of years at room temperature.
why 3%? to overcome inflation? and why on everything instead of grossly disadvantaged industries? i haven't spent much time thinking about such details, so curious about the rationale.
It’s extremely expensive to grow bananas’s in Canada, so the correct response is to import them not add a huge subsidy. The point is to encourage domestic production, but not to the point of stupidity.
Further, unlike a direct subsidy it’s adding tax revenue.
Not the person you're asking, but I could see doing it to "internalize" the risk of rare events like what we're seeing right now. Basically it applies an incentive towards regionalization over globalization, that can make the system more resilient to distant events.
grossly disadvantaged industries = industries labeled as grossly disadvantaged = industries that managed to talk politicians in to giving them a huge advantage
Really the risk sounds more like a job for insurance and warranties tied to product specs than tarrifs.
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.
My current position is involved in Supply Chain, and this hits the nail on the head.
There are so many different departments with fragmented knowledge of the supply chain that isn't shared or sometimes even documented.
One of the senior people trying to fix this specifically mentioned Walmart as an example of having their supply chain being a competitive advantage because they focused on it so much.
I think Apple was also one of the ones we discussed.
WalMart turned their supply chain into a competitive advantage 30-40 years ago. I saw it as an employee first, their inventory control in the store was ridiculous back in the 80's. Then I saw it again working with an EDI shop (Sterling Commerce) in the 90's. Everything was electronic. We'd get these little mom and pop shops calling in trying to get their bisync modems working so they could upload their ANSI X12 810's.
The only reason there's any question who's the richest person in the world is that Sam Walton is dead.
Sterling Commerce - that’s a name I haven’t heard in a •long• time. Do you by any chance remember a company called “EDES” (Electronic Data Exchange Service)?
Before he was CEO, Tim Cook was handling logistics for Apple, wasn't he?
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.
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?
> based around the idea of understanding supply chains end-to-end
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.
Is it possible some legislation requiring resilience and local-sourcing could be possible in this climate? - esp. given the political antipathy to China these days.
I sure get the feel that it would be, but I hope we get moving on that ASAP before this is over, because I suspect minds have only been temporarily opened on this matter. Before too long I suspect our old heuristics will reassert their dominance over logic on topics that are in any way associated with the identity of the person.
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.
This is arguing over whether the iceberg sank the Titanic or the decision to remove bulkheads to make room for the grand ballroom.
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.
There is a much larger more fundamental problem I'm referring to. It's right in front of us, and yet invisible, for lack of a better term. Kind of like this virus ironically.
>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.
Also Trump 'dependence on China is a huge problem'.
Of course, but if we're seeking the truth, Donald Trump isn't a good place to start.
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.
>Only that the widgets show up at their loading dock every week, and that the shipments have always been reliable in the past, so that there's no reason to look any further.
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.
My family is in manufacturing and everyone is acutely aware of their supply chain, and there are whole departments in the companies dedicated to sourcing and testing it all.
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.
If your supplier's supplier would change their supplier of something, is that something your company would know, or are they at liberty to source their materials and parts wherever and however they want and not tell anyone?
Carefully sourcing parts is one thing, tracking the whole supply chain of where your suppliers get their materials is another.
We had the same problem back in 2011 when floods in Thailand wiped out almost all of the world's hard drive manufacturing capacity across all manufacturers. It took almost two years for prices per GB to fall back to pre-flood levels.
Relying on only one country seemed as foolish then as it seems now, but we haven't learned the lesson yet.
i work on hydro electric power stations and often see drawings showing the 50, 100, 500, 1000 year flood water levels at some structure such as the powerhouse or intake. The civil engineers design the plant to withstand the 500 year flood. I've personally seen the 100 year flood level occur at about 7 different projects, and I only work on site at 1 project per year generally.
How do you build in redundancy, though? If China makes widgets for $0.13 a unit and the US makes widgets for $0.15 a unit, how do you incentivize people to buy some of them from China, and some of them from the US? It seems like the logic of free trade and specialization dictates it's mostly all-or-nothing.
That's a genuine question, by the way. I'm curious.
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.
This is really clever! It's like increasing taxes as a company gets bigger, or making people pay exponentially more for the second/third bottle of hand sanitizer.
The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail. Some industries will not learn because they will be bailed out, others like consumer electronics have probably already learned their lessons.
The incentive has already been created by Covid-19 exposing the vulnerabilities and need for decentralization. Diversification will emerge such that the next time there is a shock companies that diversified will survive, while others fail.
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.
Less competition. Twenty years even if a company manufactured something in China the sales channel for a product was dependent on the company giving the company ability to control/level the price.
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
What I mean by incentive is the concrete, day-to-day purchasing decision incentives. I know why it might be a good idea, I just don't know how people could accomplish it.
What is needed is for there to be multiple competitive and diverse fungible product sources to get redundancy. It is sort of an extension of a competitive market. Production insufficient for complete demand to be supplies by one softens the blow as it becomes half needed capacity. So if say China produces half of our screws then cut off results in a shortfall by half instead of a complete cut off.
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.
Yea I was thinking that there is some sort of parallel to datacenters, where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working.
You lose some efficiency but gain in resilience. Nowadays big internet companies have all sorts of Disaster Recovery plans.
BCP is the way, this is all risk management. Get financial lenders to insist on insurance, the insurance companies will figure out how to measure supply chain risk.
> where it's lowest latency to route everyone to their closest DC but in practice people usually route a certain percentage of traffic to standby datacenters which are farther away to make sure they're still working.
Are you keeping your own data center in addition to the AWS/GCP/Azure? Because that's the exact same premise.
I'm sure people have many good ideas. Two things that come to mind are: extend the Berry Amendment to the entire US Federal Government and designate certain products such as medicine as critical and require that they be manufactured in the US in order to be sold here.
Tariffs, subsidies, legal mandates, direct government spending (the US military frets about the industrial base and does a lot of this). Take your pick. Plenty of other solutions as well. They all have different costs and benefits, but it’s at least possible theoretically.
Exactly! I have always thought it was insane from a national security perspective to allow functionally all of key manufacturing capabilities (e.g., microprocessors) to go offshore. Nevermind the risks of inserted backdoors, etc, just the external sources of failure rapidly become too great.
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.
Its pretty clear at this point that the shareholder value revolution has been a disaster for many people and the planet.
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.
> I have always thought it was insane from a national security perspective to allow functionally all of key manufacturing capabilities (e.g., microprocessors) to go offshore.
I am not sure, a completely dependent world may make us safer as wars will very hard to execute.
That's true so long as everyone is dependent on each other. If, everyone is dependent on one country, that doesn't hold
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.
Trade goes both ways. The seller of goods is just as dependent on the exchange as the buyer. Nobody stays in business going to war with their customers. And there are truly very few products that cannot be sourced from alternates given a little time and money.
I think the "global interdependence reduces war" hypothesis is pretty strong.
Money is fake in a way that physical products aren't. So the parties have very unequal bargaining positions, the one with the "real" stuff (products) can walk away much more easily than the one with the "fake" stuff (money).
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.
You might be right over the long term, we don't know yet. Related observations have been made - people used to talk about how countries with MacDonald's franchises never went to 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:
Interesting. The McDonald's thing is sort of like saying that no two Soviet Socialist Republics have ever gone to war. It just means they aren't really sovereign independent countries acting on their own behalf.
Exactly. Once the occupying force was removed from those countries the underlying ethnic conflict resumed openly. Similar things will happen elsewhere as US military power wanes.
The saying was at least trying to claim something different. The claim was, more or less, that democracy/capitalism (people making this claim didn't distinguish them, mostly) brings peace through freedom and prosperity.
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.
Yes, and that claim is wrong. Germany has had 50,000 US troops stationed in it for 75 years and the most rebellious thing they've done is politely ask for their gold back (US said no). No need to subvert a country you already have firm control over.
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
Wow, published in 1909. Amazing how old (and wrong) this "economic mutually assured destruction" argument is.
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".
There are a lot of unsettling parallels between the era before WW I and today:
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)
Many interesting points, but the "mutual defensive pacts that will automatically draw nations into war" part seems to not apply today.
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.
> I am not sure, a completely dependent world may make us safer as wars will very hard to execute.
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.
It is insane to think that every country must have their fully end to end supply chains. Italy doesn't need to manufacture microprocessors despite the backdoors that Intel tries to introduce.
I didn't say fully end-to-end supply chains, and certainly not for every country, but major powers should at least maintain sources for critical components/elements within their own borders or those of close longstanding allies.
I said this last night to a friend: The United States (and all nations really) need to look at supply chains the way we look at AWS regions. You don't build anything in just one region when it's in production - you always have redundancy, in this case, geographical and political redundancy if possible.
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.
It's not stupidity that caused supply chain fragility. People involved understand the benefits of redundancy. It's the market that doesn't. It's fundamentally unable to protect itself against black swan events, because they're (by definition) outside of its optimization horizon. Redundancies and buffers that could protect us from once-in-couple-decades events are considered as "fat", and are cut off by competitive pressure.
The conclusion from this is that, unless there is regulation directly addressing this, nothing will change, because the market forces are what they are.
>> Redundancies and buffers that could protect us from once-in-couple-decades events are considered as "fat", and are cut off by competitive pressure.
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.
This is good then. The company with the cheaper but vulnerable supply chain suffers and the companies who paid a premium for robustness in their chain benefit. That's how capitalism is supposed to work I think.
I suspect robustness simply doesn’t work over periods of greater than a few years of competition by a vulnerable supplier.
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?
The problem is that if Steve Jobs fails to demonstrate returns commensurate with his peers, Apple shareholders can and will oust him and replace him with another CEO who will "cut the fat" in order to boost Apple's profitability.
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.
Except the market has very short memory. In the next couple of years, the more robust companies that survive this pandemic will get outcompeted by less robust companies, or forced to become less robust themselves.
It's fundamentally unable to protect itself against black swan events, because they're (by definition) outside of its optimization horizon.
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.
> Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them.
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".
I guess we have different standards as to what counts as a "black swan". To me, a black swan is an event that is genuinely unpredictable, and which has catastrophic consequences. A large earthquake in California, for example, is not a black swan. Even though we may not know exactly when the earthquake will hit, we know that one is coming eventually, and therefore reasonable preparations should be taken in order to mitigate the damage.
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.
The value of robust and redundant supply chains only becomes manifest when serious disruption actually occurs.
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.
From what I have heard and seen, the reason is that there isn't any other place where labour is that cheap. In combination with very cheap transport costs (which may be quite subsidized in order to encourage trade), what you get is a single location where almost all production occur.
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.
The cheap labor argument is one that was valid in the '90s and 2000s, but hasn't been valid for quite some time. At this point, especially with regards to electronics, it's just not possible to assemble some goods outside of China. The supply chain expertise is there. The skilled workers are there. All the tacit knowledge about the issues one encounters with mass production is there. To bring all that knowledge back would take decades, and is beyond the ability of any single firm acting alone.
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.
Small buffers, as little "waste" as possible - dark side of driving costs as low as possible when having reserves is not mandated by law (like in banking).Just In Time production system, Lean etc have all this minimization built in and elevated to a core values. Time to embrace some kinds of process "waste"?
I tend to see it in the same light. I think just in time and inventory not sitting on shelves has a lot to do with it. There is no buffer to soften the shock anymore. Things are made, and shipped as the demand is happening or as close to that point as possible. This happens all the way down the chain. Critical goods should have a mandatory back-supply.
Spreading supply chains across multiple countries to achieve redundancy and avoid single points of failure would make them more global, not less.
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.
Tim Cook is was hailed as a supply chain guru. But even he likely didn’t weigh pandemics high up on the concern list enough to have supply chain redundancy. For what appears to be a 1/100 year event I’m not sure it would make sense for most companies anyway.
Well, that's the sort of mindset people had after 9/11 or the financial crisis. Pretty much a decade (at least) of anticipating the next similar thing to happen. Did you think after Chelyabinsk that we should concentrate everything on meteor prevention? What about the rise of white supremacy in the US after the 2016 election? Hindsight tends to be myopic, kind of the opposite of 20/20. But then again, it is 2020, isn't it?
Redundancy requires spare capacity. Economic efficiency requires running at close to full capacity.
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.
Surely the problem is that there are always going to be companies willing to accept the risk of disruption. Those that can't accept that risk will have to pay more to mitigate and there costs will be higher. So it's a race to the bottom.
Your supplier's supplier is most of the time confidential information and part of your secret sauce. When one manages to take an omniscient seat, it's easy to see the flaws in the system. In practice this rarely is true.
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.
>It would be wise to have multiple sources for any given good, especially if it's essential.
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 depends on the type of product you're sourcing. I run Lumi.com which offers high redundancy to our customers, but we are a marketplace for packaging/collateral which are highly commoditized products. For manufacturing techniques that are more specialized doing this at scale can be much more challenging, because vetting, implementing training, QC, etc, has a high upfront cost.
I think this will be a driver to reduce this sort of dependence on one country. Given that SARS, H1N1 and Covid19 have all originated in this one geographic area iexpect a lot of supply chains will be changing, especially those related to medicine and healthcare. it doesn't mean abandon China, bit it means you probably only want 1/3 of your stock from one country.
The problem is that we think of the internet as the visionary stuff that was in Wired magazine in the 90s... "long tail".
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.
The price advantages of globalised supply chains vs. the relative rarity of an event like this means that, during normal periods, firms using them will enjoy a significant advantage over those doing the "right" thing and market forces will weed out the latter. So I don't expect management to be taking a lead on this.
> The price advantages of globalised supply chains vs. the relative rarity of an event like this means that, during normal periods, firms using them will enjoy a significant advantage over those doing the "right" thing and market forces will weed out the latter. So I don't expect management to be taking a lead on this.
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.
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.
A hyper-specialist will be the best at some thing or another, and bad at a lot. A generalist will likely not be as good at those things, but it can be good enough at them, and not nearly as bad at the other things.
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.
> 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.
Obviously. It needs to be enshrined in law. Stress tests, like for banks. It would also be more efficient / profitable for banks to keep lower capital reserves...
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.
Another possibility: don't do any industrial bailouts and let high-risk investors take their medicine. Next time, risky businesses will find it more expensive to get capital, as investors realize some things they weren't thinking about before.
The problem is how long it takes for that to occur. If the bankruptcies occur immediately, then people learn. If the bankruptcies occur 30 years down the line when a rare event occurs, then the high-risk investors are the only ones left in the market.
If investors can comprehend the 30-year T-bill, then they can price in a bankruptcy expected 30 years in the future. If we can sit here and figure out on our own that a business that will fold if its revenue decreases by 10% for longer than a month is not worth as much as its P/E ratio would naively suggest, then surely other people can figure it out too.
There are reasons why US prefers to bail Boeing. US is always concerned about espionage and dependencies on other countries with respect to national interest. An example would be the whole Huawei+5G debacle.
What if Boeing goes bankrupt and the only reliable plane makers are PRC companies (usually state-backed, even if it's not explicit)?
Boeing needs to be broken up. Parts critical to national security can be federalized. The rest can be restructured to restore competition to the market and eliminate the 'single point of failure'.
Boeing's efforts to consolidate the entire US aerospace industry into one company have hurt our society.
> Boeing needs to be broken up. Parts critical to national security can be federalized.
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)
If Boeing goes bankrupt all of the assets are still there and all of the employees still remember how to do their jobs. A company collapsing is a pure-paper action that means "fire everyone in charge." In some cases, depending on how the corporate governance is set up and on who holds the equity, it's the only way they can be fired.
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.
The problem is, while all this paper shuffling is taking place, state-backed players like Huawei can dominate a market in the interim. Not a good outcome to say the least. I agree that some structural change is needed, but it doesn't have a trivial solution.
Well, the flip side is that during times of crisis, one would expect market forces to weed out the former kind of companies (leaner, and with globalized supply chains). So which ones survive, and which ones are out-competed are a consequence of which set of market forces we soften and which set we allow to play out.
And the edge of that coin is: once we're past this crisis, the same market forces that created this peril will start cutting the redundancies from the survivors, setting us up for the next crisis couple decades down the line.
Yeah, not only is this a once in 100years event, it's also staggered in such a way that the Chinese manufacturing will likely be caught up by the time the European and North American economies are coming back to life.
> it's also staggered in such a way that the Chinese manufacturing will likely be caught up by the time the European and North American economies are coming back to life.
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.
SARS in 2003 and H1N1 in 2011(?) - in the age of increasing globalization and population it seems like odds of this are increasing, we have skirted and now had pandemics more than 1 in 100 years.
Global Viral Outbreaks Like Coronavirus, Once Rare, Will Become More Common: Urbanization, globalization and increased human consumption of animal proteins are driving a rise in epidemics
Counterpoint: YKK (look at your zipper) relies on absolutely no one else for its supply chain [0]. This could easily be seen as a waste by those who would say YKK should just source its metal from the foundry down the street. It's easy to do a quick thought experiment in your head to think about how feasible it might be for every company to vertically integrate the way YKK has. On the other hand, YKK can't get jerked around by greedy corporations looking to take advantage of their dependencies.
Fascinating link, I had no idea YKK was like that.
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).
Software is a bit different, because your copy won't just stop functioning if the supplier disappears. And if the source is available, then what you're really getting is a "factory", not its output. It can still be a problem if you have no expertise on how to operate said "factory" - but it's a very different problem.
> Vertical integration stories like this, or Ford's Rouge plant[1], make me reconsider my general predisposition towards "buy" in the software space.
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.
Never heard of them. Their company setup is pretty impressive. However to say 'relies on absolutely no one else for its supply chain' is an extreme exaggeration and frankly impossible.
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.
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.
The thing about zippers is, YKK is hands down the best and most reliable zipper. Yes I know there are types of zippers, metal coil, molded plastic etc- YKK makes the best of each.
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.
The companies also use it because their customers know. Not only YKK succeeded in making itself the most trusted brand, but they also succeeded in informing the end users of complete products that there is an important practical difference they must to pay attention to.
and it may only be the beginning.. application class SoC can fit in a microusb plug.. I think some people hacked some arduino like chip in the wire itself (granted it was not as thin as a normal cable)
> 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.
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.
> They don't make the computers, fiber optics, switches, exchanges, or software that their web site requires to run.
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.
Vertical integration can certainly be a great approach and can have many advantages. It can also limit your risk of exposure to outside events.
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.
The difference is that they can ride out a supply chain interuption for months for non consumables that aren't a direct part of the manufacturing process.
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.
Interesting. YKK is the highest-quality large manufacturer of zippers in the world. There is a correlation between the quality of a garment or zippered good and the presence of a YKK zipper.
That’s an interesting insight. Companies as they grew and supporting companies who could specialize and take advantage of economies of scale would provide attractive alternatives to vertical integration. Most of the auto industry is like that. Not sure how feasible integration would be in a modern economy these days.
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.
The problem is that almost no one buys products based on the stability of the supply chain, so irresponsibly-global supply chains will beat out responsibly-global ones on price.
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.
There is a third option. Apply the same regulations to the manufacture of all products sold in your country. You want to manufacture in China and sell in the US, that's fine -- but you have to do it in accordance with US environmental rules.
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.
I've been advocating this strategy for years having direct experience in a highly regulated manufacturing sector business. I like to put it this way: The US has the responsibility to protect the world from the (externalities of competing in the) largest consumer market to ever exist. We currently do a pretty good job at protecting ourselves from that market, not just with environmental laws as you mention, but with safety and worker's compensation laws as well, but it is frankly a travesty to think that our current strategy is "good" by any definition but an entirely economic one, and as we are seeing now with this pandemic, even that is dubious. There is still an enormous toll on the environment and on our shared humanity when we allow business to off-shore their dirty practices, not to mention the loss of domestic security. Climate change and the Holocene extinction show that the externalities of business are everyone's problem, and we should start acting like it.
There's a fourth option: close down all U.S. trade ports for a month once a year. No paperwork or other administrative headaches. "Just" a dry run once a year.
This is already partially done with Automobiles, for example. Comply with local pollution and safety standards or a lucrative market is closed to your exports.
I think you mean that for example, the US pollution standard needs to be fulfilled by Volkswagen if they like to export VW cars to the USA.
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.
In the short time, I agree with you. However, this also reduces the incentive to produce in a foreign country. Hence, this would even move many jobs back to the country where the consumers live. This in turn keeps the consumers' money in their country. Hence, their total wealth increases, largely already because the outflow of money is reduced. With more money available at the hands of the consumers, things don't need to be much more expensive than now.
> The problem is that almost no one buys products based on the stability of the supply chain, so irresponsibly-global supply chains will beat out responsibly-global ones on price.
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.
lol, very true! Put in that perspective, maybe it's a better idea to contain have international cooperation -- like we did for piracy -- to compat the problems that cause a country to be shut down, rather than assume international trade will always be a crapshoot.
Extended period without events will weed out firms with responsible supply chains and thus the other type of firms are very likely to be the majority - the majority of the population will depend on them. So Governments will always be forced to bail them out.
Definitely time to rethink globalized supply chains. The centralization inherent to this obsession with efficiency is simply not resilient to disruptions. We learned to build redundancy into our food production to handle disruptions like, centuries ago, which is (partly) why we pay farmers to produce more food than we technically need. We don't invest much to keep manufacturing of some other critical goods domestic.
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.
Farming is not a good comparison to manufacturing when it comes to overproduction. Food can be eaten or processed/preserved to be eaten later. Some foods have elastic demand but in general food doesn't since we all need to eat.
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.
I never said supply chains should be slower or less dynamic, I said they should be less centralized and thus more robust, and arguably critical goods manufacturing absolutely also need a domestic presence.
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.
> I never said supply chains should be slower or less dynamic, I said they should be less centralized and thus more robust, and arguably critical goods manufacturing absolutely also need a domestic presence.
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.
> If manufacturing supply chains are more geographically dispersed they are automatically slower and less dynamic.
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.
If you invest the extra cost and complexity for a redundant supply chain capable of surviving a black swan event like COVID-19, but the rest of the world doesn't, and the black swan event causes a recession with massive unemployment, does it matter? The bottleneck is now consumer spending, not your ability to produce your products.
As others have said in other threads, pandemics are emphatically NOT black swan events. Making this assumption reveals a fundamentally flawed mental model which is broken for the same reason global supply chains are -- its time constant is far too short to account for major disruptive events that have extremely high probably of occurring and have well known effects on societies, and often well known methods for prevention and management. Earthquakes, and pandemics are not black swan events, and for civil engineers and state level actors neither are volcanic eruptions.
Is it really a problem? Obviously, now, it is. But everything is a problem.
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.
It doesn't take much of a thought experiment to understand it could be a problem. China and the US have worsening relations, what if they get much worse? We are at their mercy.
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.
But that's not accurate either. In this analogy China would in fact be hosting thousands of different servers. There is no "China Business"; there are businesses in China.
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.
It seems to me like the problem is just that supply chains aren’t legible. I forget where I read this from, but Walmart or Amazon would easily pay billions of dollars to know which shipments won’t arrive over the next few months because of the rolling wave of factory shutdowns.
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.)
About a year after 9/11 I worked at the headquarters for one of our largest retailers. The main hallway through the complex that everyone had to pass through was decorated in flags and other patriotic displays wall to wall, floor to ceiling. But we also received constant emails from the company telling us to contact our members of Congress to prevent customs from knowing where we get our goods such as ceiling fans. The worry was that a spy in customs might give that information to our competitors. Seemed weird to have so many visible displays of "Country First" while at the same time placing paranoia about corporate spies in the government above the legitimate need for customs to know where the goods we were receiving were coming from.
That's because the supply chain is as immeasurably complex as the real world. Does your model account for the fact that the polish or german government decided to institute border controls and now there is a 40 mi backed up line of trucks delayed? Does it consider the cascading effects of polish truck drivers being unavailable for 14 days of quarantine if they cross into Poland for non-work reasons?
> It seems to me like the problem is just that supply chains aren’t legible.
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.
Agreed. Applying Merkle trees to supply chain management is a great idea that deserves a catchy name, although it's unfortunate the idea has been so historically intermixed with weird currency plays and ICO scams.
Over a decade ago, the supply chain hype was RFID chips. Now, more htan ten years laer, they are not used besides your occasional pallet tracking. or for hteft preventin at shops. And RFID would just have replaced bar codes, so no process changes necessary for a first implementation.
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).
> And RFID would just have replaced bar codes, so no process changes necessary for a first implementation.
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.
Not only do barcodes do the job but better and cheaper image sensors and processors allow even 1D barcodes to be read at greater distances and from multiple angles. This was one of the promises of RFID, pallets could just stream off a truck and their ID could be read by some fixed reader on the loading dock. A robot could zip past shelves and take stock of everything.
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.
Blockchain works for currency problems because the unit of tracking is the unit of value, the entire system is fully self-contained and no oracle is required to pump information into and out of the system.
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.
Amazon has a program for this called Transparency. It has some other purposes but this is one of the features of it. It's not a perfect way to track the chain but it is vaguely like what you propose.
Kicking off any sellers for the specific products in the catalog not using Transparency, providing assurances to buyers that the products are authentic. Making money for Amazon because they charge a fee for every unit.
Not sure about global shipping concerns, but I do think that 30 years of companies optimizing for Just In Time delivery in order to avoid the risks of excess inventory has made us prone to shortage crisis when 'excess' inventory is needed.
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.
As others here have mentioned, during normal times, companies have strong economic and competitive incentives not to invest in expensive, redundant, inefficient infrastructure that is robust to rare events.[a]
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.
> 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 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.
There is one thing good coming out of this, among all the desastrous things we saw so far.And that is increased awareness of the importance of jobs like nurses, shop clercks, truck drivers, deliverydrivers, warehouse workers and logistics and supply chain management.
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.
My feeling as a layman is that the scale of globalization an industry uses will emerge naturally as a result of the trade-off between the costs and benefits. So far, the benefits have been worth it, otherwise companies wouldn't do it. As the article notes, there are a number of examples where safeguards are already in place, for in those cases it's worth being cautious.
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.
We in the manufacturing tech space have been thinking a lot about reconfigurability, beyond just 3D printing locally, but to how do you tool up (make molds, program machines, etc.) automatically akin to a deploy script, Docker container, etc.
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:
Nothing will change because if we all fail together then we will be bailed out together by the government. So the best solution is to minimize costs today by maximizing the chance that we will all fail together as an industry in a downturn and get bailed out.
If we are making changes solely on the basis of COVID-19, then isn’t the lesson that whatever you do, make sure you’re manufacturing and hiring people in China? (Or South Korea).
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.
I think the unfortunate fallout from this is that China now has confirmation that they are in a dominant position world wide and likely will start to exploit that fact. This isn't a statement on the country, as any country in that position would do the ame and has done so in the past many times over.
Wouldn’t this also read as China has peaked in this regard? As now, companies would probably rethink being so China-dominant and move out, reducing China’s influence?
I'm afraid it will be hard for the US to bring back its supply chain. The US has been moving out its manufacturing business for at least three decades. As a result, we've lost generations of talent in manufacturing and supply chain. It's not like we can bring back the talents overnight.
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.
> 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.
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).
Having such reserve knowledge and experience is invaluable to national security, justified even under subsidy. Especially for critical supplies like semiconductors and medicine.
I think we're damned if we do or damned if we don't.
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.
This is what people were talking about in the beginning of the pandemic but, if anything, all this has taught us is we should invest even more deeply in global supply chains. If US made most of the masks that the US needed, then we would be shutting down all of our mask making factories right when we needed them. Because China makes our masks, China can buy global masks while they were locked down on a pandemic and now they can turn around and be the factory for the world while everyone else desperately needs masks.
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.
In light of the recent evacuation order issued by MIT administration over concerns about the spread of COVID-19, students should rethink whether or not the campus experience is really worth the exorbitant price that schools like MIT are charging for it.
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.
Hum, nope. We will not rethink globalized supply chains.
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.
> 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.
If you think about it, cloud services add another layer in the supply chain. For example, just think about a UK company buying cloud services from a US company who buys hard drives from a company in Thailand. Now, you’re affected not only by the floods in Thailand in 2012, but you’re affected by natural disasters in the US as well. Even if you’re not using US data centers, they’re part of the control plane for the data centers in Europe.
Redundancy and diversification is always a good idea in general, but I find the recent clamor for supply chain diversification due to COVID-19 bit of a knee-jerk reaction, especially considering the virus is now global. Where to diversify to is not an easy question to answer, compare to say a few weeks ago, when the virus was mostly just infecting China.
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.
Fron 2012: Trade Off: Financial system supply-chain cross contagion – a study in global systemic collapse. By David Korowicz
...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....
I think the unfortunate fallout from this is that China now has confirmation that they are in a dominant position world wide and likely will start to exploit that fact. This isn't a statement on the country, any country in that position would do exactly the same thing and had done many times in the past.
Really MIT? This is news? You and other top business schools taught throngs of MBA students to outsource and manage costs to increase shareholder value. You and your peers taught many a business leader to indirectly leverage a pool of slave labor provided by a dictatorship to make cheaper and cheaper components. Ever thought how they could be so cheap? It’s called lax environmental regulations and not valuing life; suicide nets at Foxconn ring a bell? I don’t wish ill will towards anyone, and it sucks so many people are losing their jobs right now, but based on the “preservation of money” principle (think thermodynamics for money) it’s time large business leaders reap what they’ve sowed; the collapse of the business on their watch. Sucks, but, it’s a reality and something had to give.
I highly recommend the Daniel Suarez novels Daemon and Freedom. They start with a (computer) virus taking over the world, and end up asking all kinds of interesting questions about long supply chains and how much we should trust in government and big business.
As often, I have a feeling that the answer depends on the person/group you're optimizing for.
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?
That's silly, you can easily fix the problem by using a subscription only on staples like food. That way they can't surge the supplies and you end up with one guy getting all the eggs and reselling them.
No company will trade efficiency for resiliency. If you prepare for black swan events your company is eaten by the efficient ones that don't. Even if the black swans come every 10 years.
Yes agree that its time to rethink global supply chain. Actually its time to rethink the whole economy.
Economist now say we need to consume more to keep the economy going. But the earth is warming due to global warming. When we consume more we also consume more energy to make those things.
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.
I hate to make this political, but in a neutral sense: is this not precisely what Trump ran and won the election on? I didn't vote for him, but clearly the offshoring of factories to China has had serious negative consequences. These were noticed by everyone in "flyover country" a decade ago, but the coronavirus seems to have made everyone aware of the downsides of distributed supply chains, especially to a totalitarian state in a time of crisis.
Trump ran on it, but his presentation of it was tailored to right-wing nativist populism, and the specific plan (tariffs etc) seems more like trying to show that something is getting done, than actually fixing the problem.
But it's not unique to Trump - Sanders also makes similar points wrt globalization.
There is the climate change / pollution angle too.
Its such a waste to ship things half way around the world.
A proper carbon tax on ships could improve things.
It’s also a waste and maybe (don’t know enough to do the modeling) worse for the environment to spin up many duplicative factories with poor economies of scale.
Fun side note. Since we always think of international supply chains as a modern phenomena. The Dutch have been, among other things, importing their grains since the 17th century from Eastern Europe: https://eh.net/encyclopedia/the-dutch-economy-in-the-golden-....
If those in power dealt with emergent threats like epidemics, climate change, AI safety, nuclear war, maybe we could trust them with globalized supply chains. But since they hoard profits and refuse to pay taxes, while failing to prioritize the populace survival, seems we may do well to localize into our own communities. Why should we accept global threats and barely reap the rewards of global commerce?
Executives aren't paid to build resilient organizations, they're paid to return capital to shareholders. Until you incentivize them otherwise, it won't be a priority. Right now, everyone is content to throw their hands up saying "it couldn't have been predicted" and then return to business as usual once the crisis blows over.
Often, when bad things happen, humans tend to go broad and deep and question everything around them. This is the wrong approach, IMO. Nobody has the power to alter everything around them, so nothing gets done.
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.
They actually banned them after SARS, but then legalized them again after it all wound up being sold on the black market anyway, but with worse safety.
There are many things in history that don't really fit the "tiny, continuous improvements" mold. How many modern Western democracies got where they are politically through some kind of revolution, for example? Or, if we're sticking to the time period after that was all over, consider public healthcare or public education.
You can sit there in your academic cubbyhole at MIT and rethink all you want; at the end of the day, you need something from halfway across the word that they don't make here, or not at the price you want or other requirements.
Hopefully Sloan MIT will retool their supply chain masters courses that train managers in the efficiencies of just in time global chains https://scm.mit.edu
I think that there is a general rule that the more optimal a system is the less robust it is. So, it seems that we have to choose a balance between the two. And the current market incentives are to choose the minimum costs.
It's time to rethink conducting business and trade with oppressive authoritarian and frankly communist countries. The world should not have to endure a pandemic every decade from countries that continues to suppress its people, its scientists its media. Enough is enough.
And to be clear, this is targeted at the country's government, and never its people. The government needs to be held accountable.
Probably "de-globalizing" a supply chain would turn out to mean off-shoring the entire production to one country, instead of the probably intended on-shoring of production to one's own country.
Well, isolationist policies are not really possible for small countries, they can't possibly make everything they need. Having bigger countries depend on each other is also the opportunity to somewhat teach them diplomacy; otherwise they would have an even worse behavior towards small countries.
Imagine China or the US without any need for an external country, their behavior as citizens of the world would be 10 times worse.
Supply chains have been globalized since the silk road. The famous "I, Pencil" essay is 50 years old. It may not be possible to deglobalise supply chains without unreasonable cost.
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.
