281–290 of 322 posts
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You don't get what you pay for. But generally value derives from multiple independent credible verifiable audit mechanisms.
Or from reputation. A company with a reputation for quality can charge more, because you don't need observers and can just rely on them. And they want to deliver on the reputation, so that they can keep milking it.
JS Mill has some interesting observations going back a ways.
Auditing is still recommended.
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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…
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…
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.
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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.
Such a tariff could be made more economically neutral if the tariff proceeds were distributed to citizens as a dividend too.
Easier to image with a 1,000,000% tariff: nobody would actually pay the tariff, so there's no dividend to distribute. Yet, you get an economic impact.
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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.
Mostly these kinds of risk factors are mentioned verbally in their reports at the moment.
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…
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.
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…
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…
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.
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…
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.
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.
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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…
Also Trump 'dependence on China is a huge problem'.
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…
> but they've achieved it at great effort. 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?
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…
>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 agai…
It's not a binary 'either redundancy or efficiency'.
Also, brands with a reputation for reliability can and do charge more.