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Is It Time to Rethink Globalized Supply Chains?

sloanreview.mit.edu

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Re: Is It Time to Rethink Globalized Supply Chains?

#261

Post by invalidOrTaken »

robocat wrote: post #215
stormdennis wrote: post #169

Earlier quoted context omitted.

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. H…

I think it can work, just not by crowd-sourced, incentive-based decision-making. Steve Jobs can do what Apple shareholders cannot, etc.

Re: Is It Time to Rethink Globalized Supply Chains?

#262

Post by int_19h »

ceilingcorner wrote: post #81

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 totalitar…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#263

Post by malandrew »

jcims wrote: post #88
alexose wrote: post #64

Earlier quoted context omitted.

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 themselv…

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.

> the scary shit that we find all the time

Curious to hear examples if you can share.

Re: Is It Time to Rethink Globalized Supply Chains?

#264

Post by wangii »

asdfman123 wrote: post #149
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…

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.

Help the poor. Really. When each penny counts, the incentive can only go that far. It's not exactly what capitalism good at.

Re: Is It Time to Rethink Globalized Supply Chains?

#265

Post by cultus »

hilbertseries wrote: post #148
pembrook wrote: post #145

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,…

The wet markets were already illegal. I’m not sure that betting we can prevent another pandemic is the right approach here.

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#266

Post by mistermann »

lifeisstillgood wrote: post #244
mistermann wrote: post #133

Earlier quoted context omitted.

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…

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. U…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#267

Post by dredmorbius »

notyourday wrote: post #235
6510 wrote: post #209

Earlier quoted context omitted.

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.

You get what you pay for. If you aren't paying for the guy to be the observer there's no one to observe.

You don't get what you pay for.

But generally value derives from multiple independent credible verifiable audit mechanisms.

Re: Is It Time to Rethink Globalized Supply Chains?

#268

Post by nickfromseattle »

naasking wrote: post #95

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.…

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.

Re: Is It Time to Rethink Globalized Supply Chains?

#269

Post by dredmorbius »

epicureanideal wrote: post #153
dv_dt wrote: post #96

Earlier quoted context omitted.

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 (harde…

They could introduce some new GAAP rules like... Add 10% of the value of all inventory sourced outside North America as a "risk liability". Same for 10% of yearly labor that's outsourced. Basically find ways to make short term thinking visible in their financial reports, since that's what's measured and rewarded.

Base those premiums on verified actuarially based underwriting risk and you might be on to something.

Re: Is It Time to Rethink Globalized Supply Chains?

#270

Post by danans »

quanticle wrote: post #167
TeMPOraL wrote: post #118

Earlier quoted context omitted.

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 p…

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 exampl…

> 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".

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