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Is It Time to Rethink Globalized Supply Chains?

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Re: Is It Time to Rethink Globalized Supply Chains?

#41

Post by MereInterest »

whatshisface wrote: post #37
tomp wrote: post #26

Earlier quoted context omitted.

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#42

Post by swsieber »

AnthonyMouse wrote: post #31
fennecfoxen wrote: post #15

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, wh…

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 remove…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#43

Post by whatshisface »

MereInterest wrote: post #41
whatshisface wrote: post #37

Earlier quoted context omitted.

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#44

Post by bkeyes »

jimbob45 wrote: post #16

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…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#45

Post by yellow_postit »

ape4 wrote: post #38

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#46

Post by toss1 »

tvanantwerp wrote: post #36

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 esse…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#47

Post by syshum »

ssivark wrote: post #29
jonrimmer wrote: post #19

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.

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.

not when governments around the world bailout the bad companies because they are "too Big to fail"

Re: Is It Time to Rethink Globalized Supply Chains?

#48

Post by hello_moto »

whatshisface wrote: post #37
tomp wrote: post #26

Earlier quoted context omitted.

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.

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)?

Re: Is It Time to Rethink Globalized Supply Chains?

#50

Post by whatshisface »

hello_moto wrote: post #48
whatshisface wrote: post #37

Earlier quoted context omitted.

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.

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)?

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.

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