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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 th

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.

toss1 7y ago
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.
- nxc18 7y ago
  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. https://review.chicagobooth.edu/economics/2017/article/it-s-time-rethink-milton-friedman-s-shareholder-value-argument https://review.chicagobooth.edu/economics/2017/article/it-s-...
- rileymat2 7y ago
  > 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.
  - throwaway2048 7y ago
    https://en.wikipedia.org/wiki/The_Great_Illusion https://en.wikipedia.org/wiki/The_Great_Illusion 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
    - bronipstid 7y ago
      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".
      - throwaway2048 7y ago
        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) It Happened anyways. Don't think for a second it can't happen again.
- fnord123 7y ago
  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.
  - jaywalk 7y ago
    No, Italy doesn't need to manufacture microprocessors. But Italy should be able to source microprocessors from more than one country.
    - fnord123 7y ago
      Absolutely. But toss1 was saying something else. Likely from an Imperial US perspective.
  - toss1 7y ago
    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.
alexose 7y ago
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.)
- moufestaphio 7y ago
  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.
  - jcims 7y ago
    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.
    - implements 7y ago
wongarsu 7y ago
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.
- stormdennis 7y ago
  Plus all these once a century storm and flood events seen to be happening more regularly in recent years.
  - generatorguy 7y ago
    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.
kepano 7y ago
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. https://www.lumi.com/features/source https://www.lumi.com/features/source
polskibus 7y ago
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"?
- kls 7y ago
  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.
unethical_ban 7y ago
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.
- TeMPOraL 7y ago
  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.
  - vibrolax 7y ago
    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.
    - wolco 7y ago
      Sure they can. If every 10/20 years we have an event like this source prices could be 5% higher.
      - TeMPOraL 7y ago
        Except they won't, because 10-20 years is way beyond the horizon for most companies and most investors.
mc32 7y ago
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.
- jameslevy 7y ago
  It may be best to no longer think about pandemics as a 1/100 year event.
  - perl4ever 7y ago
    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?
robofanatic 7y ago
what about demand side of things?
twblalock 7y ago
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.
belorn 7y ago
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.
- quanticle 7y ago
  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.
asdfman123 7y ago
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.
- shas3 7y ago
  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.
  - enitihas 7y ago
    How will diversified companies survive till before the shock, given consumer preference for lower prices.
    - notyourday 7y ago
      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
  - quanticle 7y ago
    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.
Spooky23 7y ago
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.
DEADBEEFC0FFEE 7y ago
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.
vicpara 7y ago
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.
cryptonector 7y ago
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.
FooHentai 7y ago
>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.
- eru 7y ago
  Minor disruptions are common, and so are minor redundancies to deal with them. It's not a binary 'either redundancy or efficiency'. Also, brands with a reputation for reliability can and do charge more.
celticninja 7y ago
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.
rmrfstar 7y ago
Professor Shih has been sounding the alarm for at least a decade [1],[2]. His has not been a popular narrative among the Cambridge intelligentsia, who skew pro-corporate and anti-producer. [1] (2010) "Innovation Killers: How Financial Tools Destroy Your Capacity to do New Things" [2] (2012) "Producing Prosperity: Why America Needs a Manufacturing Renaissance"

toss1 7y ago

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.

nxc18 7y ago
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. https://review.chicagobooth.edu/economics/2017/article/it-s-time-rethink-milton-friedman-s-shareholder-value-argument https://review.chicagobooth.edu/economics/2017/article/it-s-...
rileymat2 7y ago
> 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.
- throwaway2048 7y ago
  https://en.wikipedia.org/wiki/The_Great_Illusion https://en.wikipedia.org/wiki/The_Great_Illusion 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
  - bronipstid 7y ago
    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".
    - throwaway2048 7y ago
      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) It Happened anyways. Don't think for a second it can't happen again.
fnord123 7y ago
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.
- jaywalk 7y ago
  No, Italy doesn't need to manufacture microprocessors. But Italy should be able to source microprocessors from more than one country.
  - fnord123 7y ago
    Absolutely. But toss1 was saying something else. Likely from an Imperial US perspective.
- toss1 7y ago
  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.

alexose 7y ago

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.)

moufestaphio 7y ago
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.
- jcims 7y ago
  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.
  - implements 7y ago

wongarsu 7y ago

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.

stormdennis 7y ago
Plus all these once a century storm and flood events seen to be happening more regularly in recent years.
- generatorguy 7y ago
  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.

kepano 7y ago

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. https://www.lumi.com/features/source https://www.lumi.com/features/source

polskibus 7y ago

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"?

kls 7y ago
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.

unethical_ban 7y ago

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.

TeMPOraL 7y ago
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.
- vibrolax 7y ago
  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.
  - wolco 7y ago
    Sure they can. If every 10/20 years we have an event like this source prices could be 5% higher.
    - TeMPOraL 7y ago
      Except they won't, because 10-20 years is way beyond the horizon for most companies and most investors.

mc32 7y ago

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.

jameslevy 7y ago
It may be best to no longer think about pandemics as a 1/100 year event.
- perl4ever 7y ago
  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?

robofanatic 7y ago

what about demand side of things?

twblalock 7y ago

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.

belorn 7y ago

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.

quanticle 7y ago
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.

asdfman123 7y ago

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.

shas3 7y ago
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.
- enitihas 7y ago
  How will diversified companies survive till before the shock, given consumer preference for lower prices.
  - notyourday 7y ago
    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
- quanticle 7y ago
  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.

Spooky23 7y ago

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.

DEADBEEFC0FFEE 7y ago

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.

vicpara 7y ago

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.

cryptonector 7y ago

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.

FooHentai 7y ago

>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.

eru 7y ago
Minor disruptions are common, and so are minor redundancies to deal with them. It's not a binary 'either redundancy or efficiency'. Also, brands with a reputation for reliability can and do charge more.

celticninja 7y ago

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.

rmrfstar 7y ago

Professor Shih has been sounding the alarm for at least a decade [1],[2]. His has not been a popular narrative among the Cambridge intelligentsia, who skew pro-corporate and anti-producer. [1] (2010) "Innovation Killers: How Financial Tools Destroy Your Capacity to do New Things" [2] (2012) "Producing Prosperity: Why America Needs a Manufacturing Renaissance"