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While it is obviously not unrelated to the pandemic chaos, there is a deeper issue. As Nassim Taleb has often pointed out, the same things that make a system "

While it is obviously not unrelated to the pandemic chaos, there is a deeper issue. As Nassim Taleb has often pointed out, the same things that make a system "efficient" also can often be viewed as making it fragile. "Just-in-time" means "no buffer". We have, for decades, been doing as much as possible to make all our economic systems as efficient as possible, which is to say with no extra capacity. Thus, if it had not been the pandemic, it would eventually have been something else. Sooner or later, there is always a shock to the system. If you have made sure that every step in a long complex chain is optimized to have very little slack, the thing you have optimized for is fragility.

fny 5y ago
Given you can't predict what the shock will be or its consequences, how are you exactly going to create a buffer? Creating broad redundancies would result in lots and lots of waste both damaging to a bottom line and the environment. Also, is this "fragility" really that big of a problem? Sure, prices are going to move up 20-30% for a year or two until the supply chain issues ease, but is that worth driving up costs for decades preparing for potentially the wrong issue?
- keoqpkk 5y ago
  We don't really put a price on environmental and societal damage that "just-in-time" does (thinking of truck drivers living on the highway effectively acting as the warehouse, saving the company to build an actual warehouse). If we did, more robust models might be financially attractive too.
  - yunohn 5y ago
    I’m quite certain that replacing truck drivers with AI drivers would save the environment more than building even more warehouses.
  - bluGill 5y ago
    What is the environmental damage from making something not needed? There is a lot of energy in window glass, refined iron,and all the other parts of a car.
    - labawi 5y ago
      You could order adequately, then build and sell those cars or whatever you're making, instead of throwing the parts away. But then, you couldn't change models as swiftly, and need to sell a lot of last year's models.
- toomanydoubts 5y ago
  >prices are going to move up 20-30% for a year or two I have never ever in my whole life seen prices going down after they have gone up. Ever.
  - wiz21c 5y ago
    oil price do that all the time: up, down...
    - ComputerGuru 5y ago
      Yes, publicly traded commodities do all the time because it means there are temporary inefficiencies in the system that can be arbitraged to turn some profit, until they converge at the “correct” price for some period of time. But GP is correct, products typically don’t come down in pricing. Consumable goods are more elastic in a free market absent collusion, but finished honest-to-god products have a well-known price stickiness problem. (The price will come down, but rarely back to what it was.) Typically the only way that cycle is broken is when the product itself is obviated/supplanted by a replacement (eg an iPhone will never get cheaper but some new phone may come out that is cheaper and everyone moves to it). These are all obviously generalities though.
      - scheme271 5y ago
        But they tend to do if there's a temporary price shock. Think hard drives after the thailand floods or gpus during and after a cryptomining boom/bust cycle. Or used car prices after the cash for clunkers bill.
      - wmf 5y ago
        Stickiness seems to apply to MSRP which has mostly not gone up.
      - Zanni 5y ago
        I'm surprised you mentioned iPhones, because that's exactly Apple's strategy. They tend to keep three generations around, and each time they introduce a new iPhone, they knock down the price of the previous generations. Here's [0] an article on them reducing the price of the iPhone 8 by $150 (from $559, so a significant cut of 25%) when they introduced the iPhone 11. [0] https://venturebeat.com/2019/09/10/apple-cuts-iphone-8-and-iphone-xr-prices-by-150-kills-iphone-7-and-iphone-xs/ https://venturebeat.com/2019/09/10/apple-cuts-iphone-8-and-i...
- dharmab 5y ago
  Toyota has this figured out. After the 2011 quake they built a system to identify critical, difficult to replace parts in their supply chain and size buffers for those parts. Any they aggregate demand over larger time intervals than other manufacturers. They lasted 18 months into the pandemic shortages before they ran their buffers dry.
flyinglizard 5y ago
How much of a buffer can you possibly maintain to deal with a year long economic disruption, which changes both supply (by lockdowns and factories being offline) and demand (by a shift in consumer spending mix and free government money)? It's impractical to keep 12 months worth of supplies for manufacturing, even when you don't try to do lean manufacturing - just plain old manufacturing. It's something you need to finance, parts getting obsolete and product designs in some categories iterate every year or two. We just need to deal with this new reality. You can do your best to avoid the worst case scenario but it is after all a statistical inevitability, so you just ride through it. As I said on another comment here, though, this is going to have long standing effects on the other end of the disruption. We're going to be left with huge over capacity, unclaimed stocks and companies that couldn't produce parts will have their customers design out their parts for whatever else they can get their hands on. This is a golden opportunity for the smaller players in the industry. How giants like ST, TI and NXP will deal with this long term - I'm not quite sure. Many companies in 2021 and possibly well into 2022 who would normally design their products with TI parts will not do that because they can't even get samples, let along ramp up production.
- jdavis703 5y ago
  Toyota (famous for lean manufacturing) built redundancy in to it’s supply chain and only recently has run in to chip shortages. It may be hard, but it’s certainly possible. 0: How Toyota Steered Clear of the Chip Shortage Mess
  - Animats 5y ago
    That article was back in April. Then, in August, "Japan’s largest car maker said Thursday it was cutting production in the country by 40% in September because of a shortage of semiconductors. The company declined to say whether it would shut down plants outside of Japan." Most of automotive does not need AMSL 10nm and below fabs. They need robust 200nm to 300nm chips. This may yield car redesigns with less touchscreen dependence, simpler electronics in the essential systems, and an "infotainment" system that's less integrated with the vehicle and can be added or replaced later. Already, some new cars have shipped with a blank plate in place of the entertainment system. There's a mindset that electric cars have to be more complicated. This is strange, because managing the batteries and motors is far simpler than managing an IC engine. [1] https://www.programbusiness.com/news/toyota-succumbs-chip-shortage-and-shuts-factories https://www.programbusiness.com/news/toyota-succumbs-chip-sh...
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AYBABTME 5y ago
perl4ever had an interesting comment that they deleted after being downvoted for some reason. I'm happy to take the downvotes because I think their take was a thoughtworthy counterpoint. * * * >"Just-in-time" means "no buffer" No, it doesn't. It just means the buffer is somewhere other than where you assume it's necessary. That may in fact be a net gain. Computers and cars and whatever don't wear out instantly. It will be a long time until all the newest equipment that already exists is old enough it absolutely has to be scrapped. In some other thread on HN, someone said that everything depends on manufacturing, and services don't mean anything without manufacturing capacity. Services! Like maintaining and repairing what's already been manufactured! Like, for an extreme example, what happened in Cuba when they couldn't get new cars for a long time. Or during WWII when civilians couldn't buy new cars. Day in and day out, people talk about how terrible a disposable society is, and then we have a crisis that requires like 1% less disposal and it's the end of society.
- deleted 5y ago
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- mlang23 5y ago
  I also got downvoted for stating that I feel I have enough HW and can live a few years off what is there. I guess people have been trained to get the newest thing every year, that it now hurts them bad to not be able to do so for a few months. And yes, I agree, this could be a wonderful time to actually strengthen our knowhow regarding keeping things alive, instead of just throwing them away. Sounds like a great chance for the climate change people. How is the market for used equipment doing btw?
  - Jetrel 5y ago
    To speak to a "long perspective" on the issue, that was one of the things that scared people when electronics moved to integrated circuits. There's no "knowhow to keeping them alive". Once the magic smoke gets let out, they're just dead. There was a time when every part of a computer - including, literally, an individual "bit" of ram, could be hand-repaired, craftsman-style (and even visually assessed for failure), but we've been on a long, long trajectory towards none of this stuff being user-serviceable. We're now watching the rise of SoC, wherein my graphics card and my ram crawl into my CPU and disappear as discrete components. Strange times.
xadhominemx 5y ago
I don’t think it would have been without the pandemic, mostly because remote work and education has dramatically increased demand for PCs. There is not a ton of excess capacity especially at the wafer fab level, so PCs running 25% higher than expected was enough to push the industry into shortage. There still would have been a cycle (driven by inventory stocking / restocking), but the shortage would not have been nearly as acute.
- bserge 5y ago
  Funny enough I believe it's not even the real consumer/end user demand. It's just companies anticipating or seeing the same thing (an increase in consumer PC demand) and all releasing their own shitbox/AIO/desktop/laptop. I bet most of them are sitting in warehouses unsold.
- tsywke44 5y ago
  Nope, not just PCs, just electronics in general. The pandemic allowed tens of millions of well-off western office workers to move out of tiny urban flats into more spacious housing. While having to spend a lot of time in their new homes, which was previously in ”public” places (eg restaurants, bars, what have you) Now, what to do with all that space? A giant tv, washer and dryer, a nice stereo set, new induction stove, the list goes on and on… PC demand also increased obviously, but probably bitcoin miners caused the most demand for PC hardware components
  - deleted 5y ago
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- chx 5y ago
  The automotive industry scaling back and cancelling orders in the beginning of the pandemic and then being shocked when their orders came back, increased even and the chip manufacturers couldn't just step up was a serious factor too.
  - xadhominemx 5y ago
    That definitely made the inventory cycle more extreme
yskchu 5y ago
> "Just-in-time" means "no buffer". Just in time doesn't necessarily mean no buffer, the goal is to minimize excessive stockpiling and keep enough for continuous production, increasing stockpile when required. Toyota, some might say THE pioneer of Just-in-time manufacturing, was one of the car manufacturers least impacted by the component shortage precisely because they started stockpiling very early on after they saw the upcoming issue. Here's a quote from another Bloomberg article specifically on Toyota[1]: "Toyota asks its Tier 1 suppliers to input detailed information about their most obscure parts and materials providers in a complex database that it maintains. Using this system to glean information about, say, a single headlight Toyota purchases for one of its cars, it can get information as granular as the names and locations of the companies that make the materials that go into surface treatments used on those headlights’ lenses and even the producers of the lubricants used on the rubber pieces in the assembly, Toyota spokeswoman Shiori Hashimoto says. These lines of communication alerted the company early on that it needed to stockpile chips." [1]: How Toyota Steered Clear of the Chip Shortage Mess - https://www.bloomberg.com/news/articles/2021-04-07/how-toyota-s-supply-chain-helped-it-weather-the-chip-shortage https://www.bloomberg.com/news/articles/2021-04-07/how-toyot...
- Spooky23 5y ago
  The difference is that Toyota is a uniquely intelligent company with respect to supply chain. The average American manufacturing company is run by a CFO operating with reports out of SAP or Peoplesoft. Their performance is measured by fiscal performance, so running to the penny and having no inventory benefits them more than making the company resilient. Wall St rewards quarterly performance, not resilience.
  - fennecfoxen 5y ago
    Being a resilient company only means that when it’s time for an industry bailout you get less than your competitors because you’re doing better. Private profit, socialized risk.
    - skybrian 5y ago
radley 5y ago
There's a really good (free) interview on the Verge with Dr. Willy Shih who explains whats going on: https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-shortage-tsmc-samsung-ps5-decoder-interview?scrolla=5eb6d68b7fedc32c19ef33b4 https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-... TLDR: it essentially was the pandemic: cancelling orders -> redirecting supply -> too late to uncancel + competitive hoarding.
radley 5y ago
There's a really good (free) interview on the Verge with Dr. Willy Shih who explains whats going on: https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-shortage-tsmc-samsung-ps5-decoder-interview?scrolla=5eb6d68b7fedc32c19ef33b4 https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-... TLDR: it essentially was the pandemic: cancelling orders -> redirecting supply -> too late to uncancel -> low supply + competitive hoarding. Plus a 10 year $150B head start.
ksec 5y ago
> "Just-in-time" means "no buffer". Personally I have been ranting about the Modern use of Just in time manufacturing for well over a decade. Just in Time manufacturing as it originate in Japan doesn't actually means no buffering. Somewhere a long the line in typical Chinese whisper fashion the true meaning got loss when it go to the west. If you are software developer, just like at Agile and Kanban board. The problem make worst when CEO and COO dont actually understand this, and force those in supply chain to comply with their view of JIT. It works in a sense when everything is normal. It doesn't work when there is a shock. Look at Apple, the only company that took JIT to a level beyond Toyota. They are doing just fine while others are fighting for parts. The other thing worth pointing to is that this isn't just chips, but also every other commodity. The reason behind all these different industry are exactly the same. You could have swap the title for Beef, Poultry, Steel, Toilet Paper, Mask, Chips, Milk, Pencil, paper etc... I really do wish people learn a little about how supply chain works. It is the fabric of our daily life and yet very little attention has been paid to it.
- mhb 5y ago
  Maybe you should rant a little here about why just-in-time doesn't imply no (or minimal) buffers. If not, what does it mean?
  - mpyne 5y ago
    It means not carrying needless excess work-in-progress that cannot be delivered to the customer but may very well go stale or never be sold at all. This is a balance point, not an optimization problem where you're supposed to go to the extreme. In fact, one of the books that popularized Lean manufacturing, Eli Goldblatt's "The Goal", explicitly makes the point throughout the book that making work centers within a plant locally optimal will cause your overall operation to fail to deliver efficient outputs. To make global efficiency improvements you have to accept that individual work centers may be inefficient. Rather, just like a developer optimizing their software program, you need to look at your entire organization and find where the actual bottlenecks are, and improve those specific bottlenecks, potentially by running "inefficient" (but non-bottlenecked) work centers to assist the teams that are the current bottleneck. And then as you change things you'll have to be willing to address a different bottleneck. Moreover, unavoidable variances (which the book describes in a story about a Boy Scout camping trip) means it will be potentially disastrous to 'optimize' even your critical path, just like you wouldn't want a network router to be consistently near max capacity.
trixie_ 5y ago
The pandemic caused companies to buy chips like people were buying toilet paper.
- Gigachad 5y ago
  If every company suddenly decided that they now want to keep a years stock of their important parts rather than a week, the demand just went up 52x right away. It's no surprise even basic parts are sold out for the next year at least.
  - sokoloff 5y ago
    All that does is pull through a year of extra demand. (I’d be more inclined to call it a doubling of annual demand rather than a 52x.)
    - bestham 5y ago
      On a weekly basis that would be a one time 52x increase in incoming orders. On a yearly basis it would be a one time doubling. But that is just semantics. What is important to discuss is that no one was paying for a extra idling factory before, and now suddenly it is needed for one year to satisfy every customer wanting to keep a one year local buffer. One also have to take the effect of a one year buffer for the whole supply chain into account. The demand for the manufactured good also increased due to their customers wanting to keep the same one year of buffer, so the one year buffer (based of your previous demand) would be consumed solely by your customers buffer and your orders would have to be larger than one year of inventory for you to keep one year of inventory after the demand spike. In the end it is easy to imagine that new buffers would lead to a huge scarcity, especially for the longer supply chains.
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swsieber 5y ago
It got me thinking that a buffer is really just operational insurance, and the cost is "efficiency". I wonder if it's the same average efficiency. If so, my knee-jerk though is that I much prefer the smooth buffered model as opposed to the spiky unbuffered model.
- kqr 5y ago
  Unfortunately, large buffers lead to more spiky behaviour than well-kempt ones. One of the reasons is they hide feedback about downstream capacity problems. (See "bufferbloat" for this in internet terms, Principles of Product Development Flow for it in terms of creative work, and any book on lean manufacturing for it in terms of repetitive work.
api 5y ago
I’m fond of the idea that efficiency can also be overfitting.
- rossdavidh 5y ago
  Interesting analogy!
programmarchy 5y ago
This is a good point. Perhaps it was better for the problem to be revealed during this pandemic rather than something worse like a war.
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missedthecue 5y ago
I'd rather have fragile efficiency over the long run than robust inefficiency to smooth over the rare events like covid. I mean would we all like the base model Ford Focus to cost $45,000 simply so that they'd be available on the lot during a once in a century pandemic?
- kqr 5y ago
  Also small-scale fragility makes for large-scale anti-fragility if the broken things are allowed to break.
coliveira 5y ago
In capitalism there is a very simple solution for shortages: price increases. People still haven't realized that the solution is just to increase prices until only enough people afford the products, so there won't be shortages anymore.
- kibibyte 5y ago
  This is exactly what's happening. Chips in high-demand have gotten very expensive. https://blog.flipperzero.one/manufacturing-and-shipping-update/ https://blog.flipperzero.one/manufacturing-and-shipping-upda...
- engineer_22 5y ago
  Few people consider a deflating economy a "solution".
  - kqr 5y ago
    The point is that artificially keeping prices low does not improve the supply. If anything, it has the opposite effect. By raising prices on the high demand stuff, you send a signal to the people that can get by with alternative stuff that now is a good time to do so. So, like, highly hypothetically, if I couldn't find a calculator for a good price, I'm in a good seat to whip out my slide rule. This gives me an edge over the people who have to pay high prices for calculators, and simultaneously smooths out demand. What's good for me is also good for the people who really need calculators.
    - engineer_22 5y ago
      Yeah, that's high school macro. I didn't need an explanation, but it seems that you do. Optimally distributing fewer goods isn't a solution to the problem. The problem is a shortage.
      - kqr 5y ago
        I still don't see how reducing demand isn't a solution to excess demand. I'm honestly confused and would be happy if you could take the time to explain.
nradov 5y ago
Toyota actually had a large buffer of chip inventory which allowed them to maintain production longer than most other auto manufacturers. But it wasn't enough and they're finally cutting production. There are limits to buffering.
gumby 5y ago
> the same things that make a system "efficient" also can often be viewed as making it fragile. Apart from the Toyota approach, discussed, Dell pioneered a different system: they forced "SLA"s on suppliers for whom Dell was a major customer. This was back in the mail order build-to-order business of the 90s; I don't really know what Dell does these days. It worked like this: Dell took a truckload of parts. They hit the loading dock; were (in the finance sense "received"); Dell accepted the invoice (to be paid 30 days later or whenever) and the goods appeared on their balance sheet. They used them in computers they built, sent out, and then charged the customer's credit card for, getting paid immediately. When they ran low on part P they called up the vendor and said "deliver us some more right away". What was "right away"? Why pretty much immediately; the vendor had them in a truck outside Dell's facility. If they didn't, well, they stopped being Dell's vendor. Pretty clever: the contents of those trucks were still on the vendor's balance sheet until Dell asked for them; Dell got to use them and get revenue for them long before they needed to be paid for, but basically not before they were needed. They made so much money on the float, and all at their vendors' expense. They did the opposite too: if they had inventory ready to go but without a customer (prebuilt configs) they put it in trucks and drove the trucks away from the docs. I don't know how they got their auditors to accept it as GAAP but they did and were lauded by Business Week, the WSJ etc for their cleverness.
- bestham 5y ago
  While impressive, this is only sustainable in a non-sustainable world. The burden that Dell unnecessary put on their suppliers have to be absorbed by the economy at some point. The single most important point that Toyota makes is stressing the importance of supply chain wide sustainability. Eg. by paying your suppliers ASAP and shortening credit lines, you should be able to get the parts cheaper than what you make of the interest.
  - gumby 5y ago
    Agreed! I hope I didn’t come off as enthusiastic about Dell’s parasitic approach.
dragonwriter 5y ago
> "Just-in-time" means "no buffer". No, that's a degenerate fragile microoptimization inspired by seeing the short-term cost savings of just-in-time and going all in on those savings without understanding just-in-time. What “just-in-time” actually means is dynamically exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc.
- sixdimensional 5y ago
  Yeah, the original comment is way off. I worked for a major electronics manufacturing company helping with demand driven MRP (DDMRP, MRP=material requirements planning) and obsolescence (DMSMS - diminishing manufacturing sources and material shortages). I can definitively confirm that just-in-time is about trying to optimize the amount and strategic positioning of buffer needed to support the "right amount of production" to meet anticipated and actual demand, exactly as you describe. Now, doing that can be rather difficult in the case of black swan events. But the goal is as you describe.
- jjk166 5y ago
  > dynamically exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc. "Exactly enough" means "no buffer". You are simply mislabelling inventory as buffer. What people needed was buffer beyond what is cost effective given current expectations because something unexpected happened causing improbable supply irregularities.
  - dragonwriter 5y ago
    > "Exactly enough" means "no buffer". “Exactly enough” means nothing by itself. “Exactly enough for X” means different things based on X. “Exactly enough for current production” means no buffer. “Exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc.” does not generally mean “no buffering” unless conditions are expected to be extremely stable, or response time to changing conditions from identification to new deliveries are near instant and there is negligible risk of that changing, or there is negligible cost (including opportunity cost) to production interruption.
drawkbox 5y ago
Very little margin and too much optimization/efficiency is bad for resilience. Couple that with private equity backed near entire market leverage monopolies/duopolies/oligopolies that control necessary supply and you have trouble. HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezed out and with that, an ability to change vectors quickly. It is the large company/startup agility difference with the added weight of physical/expensive manufacturing. The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1] > Superefficient businesses create the potential for social disorder. > A superefficient dominant model elevates the risk of catastrophic failure. > *If a system is highly efficient, odds are that efficient players will game it.* Over efficiency and supply chain concentration single point(s) of failure (China/Asia with chips especially across Hong Kong and Taiwan that make most of the chips) caused supply chain disruptions, some hoarding is also going on with chips. [2] The HBA MBA-itis and Chicago style thinking of excessive efficiency made the players that can compete larger and less of them, that takes away resilience and leads the market to gaming. The market has thus been gamed as the players that control it are more powerful in terms of market leverage. When you give up diversification and flexibility you get leverage and added weight to any needed quick changes as the large players attempt to control the market. [3] US is now building up silicon supply chains again [4][5], it was much bigger in the 90s/early 00s with Intel/Motorola/etc additionally, but business leaders allowed a concentration to happen and it led to market leverage. Hopefully that same mistake is not made in the future. It will take time to build up diversification of market leverage in terms of chips for availability. This chip shortage, and all the supply chain problems during the pandemic as well, will hopefully introduce more wisdom and knowledge into business institutions that just because things are ok while being overly super efficient, that is almost a bigger risk than higher prices/costs. Competition is a leverage reducer. Margin is a softer ride even if the profit margins aren't as big. [1] https://hbr.org/2019/01/the-high-price-of-efficiency https://hbr.org/2019/01/the-high-price-of-efficiency [2] https://finance.yahoo.com/news/china-stockpiles-chips-chip-making-210000407.html https://finance.yahoo.com/news/china-stockpiles-chips-chip-m... [3] https://www.bloomberg.com/news/articles/2019-12-03/china-stockpiles-foreign-tech-as-silicon-curtain-descends https://www.bloomberg.com/news/articles/2019-12-03/china-sto... [4] https://www.cnbc.com/2021/03/23/intel-is-spending-20-billion-to-build-two-new-chip-plants-in-arizona.html https://www.cnbc.com/2021/03/23/intel-is-spending-20-billion... [5] https://www.cnbc.com/2020/05/15/tsmc-to-build-us-chip-factory.html https://www.cnbc.com/2020/05/15/tsmc-to-build-us-chip-factor...
m463 5y ago
not only is there a shock to the system, every (sub)system has had shocks. I was talking to someone who was rebuilding a home, and the price of plywood went from $8/sheet to > $100/sheet Another person said that the company that makes 75% of the electrical panels had stopped production. those are just two pieces of the bigger puzzle, but since many if not all pieces have similar shocks, it would really surprise me if capacity could ever increase to meet demand.
TedShiller 5y ago
It is alarming that people don’t understand that this is just another way to say inflation. The government prefers to call it a shortage.
qaq 5y ago
Scary part same applies to clouds. People spend a ton of effort making things multi-region and multi-cloud yet there is not enouph spare capacity to absorbs AWS US East going out
tharne 5y ago
Fun fact, in the early days of lean manufacturing (of which "just in time" is a part), the practitioners often referred to it as the "fragile production system" for precisely the reasons you mention here. So yes, lean manufacturing is brutally efficient, but incredibly fragile.
PontifexMinimus 5y ago
> "Just-in-time" means "no buffer". We have, for decades, been doing as much as possible to make all our economic systems as efficient as possible, which is to say with no extra capacity. This is true, but I don't see an antidote. The government couldn't just tell businesses to "be inefficient"!

fny 5y ago

Given you can't predict what the shock will be or its consequences, how are you exactly going to create a buffer? Creating broad redundancies would result in lots and lots of waste both damaging to a bottom line and the environment. Also, is this "fragility" really that big of a problem? Sure, prices are going to move up 20-30% for a year or two until the supply chain issues ease, but is that worth driving up costs for decades preparing for potentially the wrong issue?

keoqpkk 5y ago
We don't really put a price on environmental and societal damage that "just-in-time" does (thinking of truck drivers living on the highway effectively acting as the warehouse, saving the company to build an actual warehouse). If we did, more robust models might be financially attractive too.
- yunohn 5y ago
  I’m quite certain that replacing truck drivers with AI drivers would save the environment more than building even more warehouses.
- bluGill 5y ago
  What is the environmental damage from making something not needed? There is a lot of energy in window glass, refined iron,and all the other parts of a car.
  - labawi 5y ago
    You could order adequately, then build and sell those cars or whatever you're making, instead of throwing the parts away. But then, you couldn't change models as swiftly, and need to sell a lot of last year's models.
toomanydoubts 5y ago
>prices are going to move up 20-30% for a year or two I have never ever in my whole life seen prices going down after they have gone up. Ever.
- wiz21c 5y ago
  oil price do that all the time: up, down...
  - ComputerGuru 5y ago
    Yes, publicly traded commodities do all the time because it means there are temporary inefficiencies in the system that can be arbitraged to turn some profit, until they converge at the “correct” price for some period of time. But GP is correct, products typically don’t come down in pricing. Consumable goods are more elastic in a free market absent collusion, but finished honest-to-god products have a well-known price stickiness problem. (The price will come down, but rarely back to what it was.) Typically the only way that cycle is broken is when the product itself is obviated/supplanted by a replacement (eg an iPhone will never get cheaper but some new phone may come out that is cheaper and everyone moves to it). These are all obviously generalities though.
    - scheme271 5y ago
      But they tend to do if there's a temporary price shock. Think hard drives after the thailand floods or gpus during and after a cryptomining boom/bust cycle. Or used car prices after the cash for clunkers bill.
    - wmf 5y ago
      Stickiness seems to apply to MSRP which has mostly not gone up.
    - Zanni 5y ago
      I'm surprised you mentioned iPhones, because that's exactly Apple's strategy. They tend to keep three generations around, and each time they introduce a new iPhone, they knock down the price of the previous generations. Here's [0] an article on them reducing the price of the iPhone 8 by $150 (from $559, so a significant cut of 25%) when they introduced the iPhone 11. [0] https://venturebeat.com/2019/09/10/apple-cuts-iphone-8-and-iphone-xr-prices-by-150-kills-iphone-7-and-iphone-xs/ https://venturebeat.com/2019/09/10/apple-cuts-iphone-8-and-i...
dharmab 5y ago
Toyota has this figured out. After the 2011 quake they built a system to identify critical, difficult to replace parts in their supply chain and size buffers for those parts. Any they aggregate demand over larger time intervals than other manufacturers. They lasted 18 months into the pandemic shortages before they ran their buffers dry.

flyinglizard 5y ago

How much of a buffer can you possibly maintain to deal with a year long economic disruption, which changes both supply (by lockdowns and factories being offline) and demand (by a shift in consumer spending mix and free government money)? It's impractical to keep 12 months worth of supplies for manufacturing, even when you don't try to do lean manufacturing - just plain old manufacturing. It's something you need to finance, parts getting obsolete and product designs in some categories iterate every year or two. We just need to deal with this new reality. You can do your best to avoid the worst case scenario but it is after all a statistical inevitability, so you just ride through it. As I said on another comment here, though, this is going to have long standing effects on the other end of the disruption. We're going to be left with huge over capacity, unclaimed stocks and companies that couldn't produce parts will have their customers design out their parts for whatever else they can get their hands on. This is a golden opportunity for the smaller players in the industry. How giants like ST, TI and NXP will deal with this long term - I'm not quite sure. Many companies in 2021 and possibly well into 2022 who would normally design their products with TI parts will not do that because they can't even get samples, let along ramp up production.

jdavis703 5y ago
Toyota (famous for lean manufacturing) built redundancy in to it’s supply chain and only recently has run in to chip shortages. It may be hard, but it’s certainly possible. 0: How Toyota Steered Clear of the Chip Shortage Mess
- Animats 5y ago
  That article was back in April. Then, in August, "Japan’s largest car maker said Thursday it was cutting production in the country by 40% in September because of a shortage of semiconductors. The company declined to say whether it would shut down plants outside of Japan." Most of automotive does not need AMSL 10nm and below fabs. They need robust 200nm to 300nm chips. This may yield car redesigns with less touchscreen dependence, simpler electronics in the essential systems, and an "infotainment" system that's less integrated with the vehicle and can be added or replaced later. Already, some new cars have shipped with a blank plate in place of the entertainment system. There's a mindset that electric cars have to be more complicated. This is strange, because managing the batteries and motors is far simpler than managing an IC engine. [1] https://www.programbusiness.com/news/toyota-succumbs-chip-shortage-and-shuts-factories https://www.programbusiness.com/news/toyota-succumbs-chip-sh...

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AYBABTME 5y ago

perl4ever had an interesting comment that they deleted after being downvoted for some reason. I'm happy to take the downvotes because I think their take was a thoughtworthy counterpoint. * * * >"Just-in-time" means "no buffer" No, it doesn't. It just means the buffer is somewhere other than where you assume it's necessary. That may in fact be a net gain. Computers and cars and whatever don't wear out instantly. It will be a long time until all the newest equipment that already exists is old enough it absolutely has to be scrapped. In some other thread on HN, someone said that everything depends on manufacturing, and services don't mean anything without manufacturing capacity. Services! Like maintaining and repairing what's already been manufactured! Like, for an extreme example, what happened in Cuba when they couldn't get new cars for a long time. Or during WWII when civilians couldn't buy new cars. Day in and day out, people talk about how terrible a disposable society is, and then we have a crisis that requires like 1% less disposal and it's the end of society.

deleted 5y ago
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mlang23 5y ago
I also got downvoted for stating that I feel I have enough HW and can live a few years off what is there. I guess people have been trained to get the newest thing every year, that it now hurts them bad to not be able to do so for a few months. And yes, I agree, this could be a wonderful time to actually strengthen our knowhow regarding keeping things alive, instead of just throwing them away. Sounds like a great chance for the climate change people. How is the market for used equipment doing btw?
- Jetrel 5y ago
  To speak to a "long perspective" on the issue, that was one of the things that scared people when electronics moved to integrated circuits. There's no "knowhow to keeping them alive". Once the magic smoke gets let out, they're just dead. There was a time when every part of a computer - including, literally, an individual "bit" of ram, could be hand-repaired, craftsman-style (and even visually assessed for failure), but we've been on a long, long trajectory towards none of this stuff being user-serviceable. We're now watching the rise of SoC, wherein my graphics card and my ram crawl into my CPU and disappear as discrete components. Strange times.

xadhominemx 5y ago

I don’t think it would have been without the pandemic, mostly because remote work and education has dramatically increased demand for PCs. There is not a ton of excess capacity especially at the wafer fab level, so PCs running 25% higher than expected was enough to push the industry into shortage. There still would have been a cycle (driven by inventory stocking / restocking), but the shortage would not have been nearly as acute.

bserge 5y ago
Funny enough I believe it's not even the real consumer/end user demand. It's just companies anticipating or seeing the same thing (an increase in consumer PC demand) and all releasing their own shitbox/AIO/desktop/laptop. I bet most of them are sitting in warehouses unsold.
tsywke44 5y ago
Nope, not just PCs, just electronics in general. The pandemic allowed tens of millions of well-off western office workers to move out of tiny urban flats into more spacious housing. While having to spend a lot of time in their new homes, which was previously in ”public” places (eg restaurants, bars, what have you) Now, what to do with all that space? A giant tv, washer and dryer, a nice stereo set, new induction stove, the list goes on and on… PC demand also increased obviously, but probably bitcoin miners caused the most demand for PC hardware components
- deleted 5y ago
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chx 5y ago
The automotive industry scaling back and cancelling orders in the beginning of the pandemic and then being shocked when their orders came back, increased even and the chip manufacturers couldn't just step up was a serious factor too.
- xadhominemx 5y ago
  That definitely made the inventory cycle more extreme

yskchu 5y ago

> "Just-in-time" means "no buffer". Just in time doesn't necessarily mean no buffer, the goal is to minimize excessive stockpiling and keep enough for continuous production, increasing stockpile when required. Toyota, some might say THE pioneer of Just-in-time manufacturing, was one of the car manufacturers least impacted by the component shortage precisely because they started stockpiling very early on after they saw the upcoming issue. Here's a quote from another Bloomberg article specifically on Toyota[1]: "Toyota asks its Tier 1 suppliers to input detailed information about their most obscure parts and materials providers in a complex database that it maintains. Using this system to glean information about, say, a single headlight Toyota purchases for one of its cars, it can get information as granular as the names and locations of the companies that make the materials that go into surface treatments used on those headlights’ lenses and even the producers of the lubricants used on the rubber pieces in the assembly, Toyota spokeswoman Shiori Hashimoto says. These lines of communication alerted the company early on that it needed to stockpile chips." [1]: How Toyota Steered Clear of the Chip Shortage Mess - https://www.bloomberg.com/news/articles/2021-04-07/how-toyota-s-supply-chain-helped-it-weather-the-chip-shortage https://www.bloomberg.com/news/articles/2021-04-07/how-toyot...

Spooky23 5y ago
The difference is that Toyota is a uniquely intelligent company with respect to supply chain. The average American manufacturing company is run by a CFO operating with reports out of SAP or Peoplesoft. Their performance is measured by fiscal performance, so running to the penny and having no inventory benefits them more than making the company resilient. Wall St rewards quarterly performance, not resilience.
- fennecfoxen 5y ago
  Being a resilient company only means that when it’s time for an industry bailout you get less than your competitors because you’re doing better. Private profit, socialized risk.
  - skybrian 5y ago

radley 5y ago

There's a really good (free) interview on the Verge with Dr. Willy Shih who explains whats going on: https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-shortage-tsmc-samsung-ps5-decoder-interview?scrolla=5eb6d68b7fedc32c19ef33b4 https://www.theverge.com/2021/8/31/22648372/willy-shih-chip-... TLDR: it essentially was the pandemic: cancelling orders -> redirecting supply -> too late to uncancel + competitive hoarding.

radley 5y ago

ksec 5y ago

> "Just-in-time" means "no buffer". Personally I have been ranting about the Modern use of Just in time manufacturing for well over a decade. Just in Time manufacturing as it originate in Japan doesn't actually means no buffering. Somewhere a long the line in typical Chinese whisper fashion the true meaning got loss when it go to the west. If you are software developer, just like at Agile and Kanban board. The problem make worst when CEO and COO dont actually understand this, and force those in supply chain to comply with their view of JIT. It works in a sense when everything is normal. It doesn't work when there is a shock. Look at Apple, the only company that took JIT to a level beyond Toyota. They are doing just fine while others are fighting for parts. The other thing worth pointing to is that this isn't just chips, but also every other commodity. The reason behind all these different industry are exactly the same. You could have swap the title for Beef, Poultry, Steel, Toilet Paper, Mask, Chips, Milk, Pencil, paper etc... I really do wish people learn a little about how supply chain works. It is the fabric of our daily life and yet very little attention has been paid to it.

mhb 5y ago
Maybe you should rant a little here about why just-in-time doesn't imply no (or minimal) buffers. If not, what does it mean?
- mpyne 5y ago
  It means not carrying needless excess work-in-progress that cannot be delivered to the customer but may very well go stale or never be sold at all. This is a balance point, not an optimization problem where you're supposed to go to the extreme. In fact, one of the books that popularized Lean manufacturing, Eli Goldblatt's "The Goal", explicitly makes the point throughout the book that making work centers within a plant locally optimal will cause your overall operation to fail to deliver efficient outputs. To make global efficiency improvements you have to accept that individual work centers may be inefficient. Rather, just like a developer optimizing their software program, you need to look at your entire organization and find where the actual bottlenecks are, and improve those specific bottlenecks, potentially by running "inefficient" (but non-bottlenecked) work centers to assist the teams that are the current bottleneck. And then as you change things you'll have to be willing to address a different bottleneck. Moreover, unavoidable variances (which the book describes in a story about a Boy Scout camping trip) means it will be potentially disastrous to 'optimize' even your critical path, just like you wouldn't want a network router to be consistently near max capacity.

trixie_ 5y ago

The pandemic caused companies to buy chips like people were buying toilet paper.

Gigachad 5y ago
If every company suddenly decided that they now want to keep a years stock of their important parts rather than a week, the demand just went up 52x right away. It's no surprise even basic parts are sold out for the next year at least.
- sokoloff 5y ago
  All that does is pull through a year of extra demand. (I’d be more inclined to call it a doubling of annual demand rather than a 52x.)
  - bestham 5y ago
    On a weekly basis that would be a one time 52x increase in incoming orders. On a yearly basis it would be a one time doubling. But that is just semantics. What is important to discuss is that no one was paying for a extra idling factory before, and now suddenly it is needed for one year to satisfy every customer wanting to keep a one year local buffer. One also have to take the effect of a one year buffer for the whole supply chain into account. The demand for the manufactured good also increased due to their customers wanting to keep the same one year of buffer, so the one year buffer (based of your previous demand) would be consumed solely by your customers buffer and your orders would have to be larger than one year of inventory for you to keep one year of inventory after the demand spike. In the end it is easy to imagine that new buffers would lead to a huge scarcity, especially for the longer supply chains.

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swsieber 5y ago

It got me thinking that a buffer is really just operational insurance, and the cost is "efficiency". I wonder if it's the same average efficiency. If so, my knee-jerk though is that I much prefer the smooth buffered model as opposed to the spiky unbuffered model.

kqr 5y ago
Unfortunately, large buffers lead to more spiky behaviour than well-kempt ones. One of the reasons is they hide feedback about downstream capacity problems. (See "bufferbloat" for this in internet terms, Principles of Product Development Flow for it in terms of creative work, and any book on lean manufacturing for it in terms of repetitive work.

api 5y ago

I’m fond of the idea that efficiency can also be overfitting.

rossdavidh 5y ago
Interesting analogy!

programmarchy 5y ago

This is a good point. Perhaps it was better for the problem to be revealed during this pandemic rather than something worse like a war.

deleted 5y ago

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missedthecue 5y ago

I'd rather have fragile efficiency over the long run than robust inefficiency to smooth over the rare events like covid. I mean would we all like the base model Ford Focus to cost $45,000 simply so that they'd be available on the lot during a once in a century pandemic?

kqr 5y ago
Also small-scale fragility makes for large-scale anti-fragility if the broken things are allowed to break.

coliveira 5y ago

In capitalism there is a very simple solution for shortages: price increases. People still haven't realized that the solution is just to increase prices until only enough people afford the products, so there won't be shortages anymore.

kibibyte 5y ago
This is exactly what's happening. Chips in high-demand have gotten very expensive. https://blog.flipperzero.one/manufacturing-and-shipping-update/ https://blog.flipperzero.one/manufacturing-and-shipping-upda...
engineer_22 5y ago
Few people consider a deflating economy a "solution".
- kqr 5y ago
  The point is that artificially keeping prices low does not improve the supply. If anything, it has the opposite effect. By raising prices on the high demand stuff, you send a signal to the people that can get by with alternative stuff that now is a good time to do so. So, like, highly hypothetically, if I couldn't find a calculator for a good price, I'm in a good seat to whip out my slide rule. This gives me an edge over the people who have to pay high prices for calculators, and simultaneously smooths out demand. What's good for me is also good for the people who really need calculators.
  - engineer_22 5y ago
    Yeah, that's high school macro. I didn't need an explanation, but it seems that you do. Optimally distributing fewer goods isn't a solution to the problem. The problem is a shortage.
    - kqr 5y ago
      I still don't see how reducing demand isn't a solution to excess demand. I'm honestly confused and would be happy if you could take the time to explain.

nradov 5y ago

Toyota actually had a large buffer of chip inventory which allowed them to maintain production longer than most other auto manufacturers. But it wasn't enough and they're finally cutting production. There are limits to buffering.

gumby 5y ago

> the same things that make a system "efficient" also can often be viewed as making it fragile. Apart from the Toyota approach, discussed, Dell pioneered a different system: they forced "SLA"s on suppliers for whom Dell was a major customer. This was back in the mail order build-to-order business of the 90s; I don't really know what Dell does these days. It worked like this: Dell took a truckload of parts. They hit the loading dock; were (in the finance sense "received"); Dell accepted the invoice (to be paid 30 days later or whenever) and the goods appeared on their balance sheet. They used them in computers they built, sent out, and then charged the customer's credit card for, getting paid immediately. When they ran low on part P they called up the vendor and said "deliver us some more right away". What was "right away"? Why pretty much immediately; the vendor had them in a truck outside Dell's facility. If they didn't, well, they stopped being Dell's vendor. Pretty clever: the contents of those trucks were still on the vendor's balance sheet until Dell asked for them; Dell got to use them and get revenue for them long before they needed to be paid for, but basically not before they were needed. They made so much money on the float, and all at their vendors' expense. They did the opposite too: if they had inventory ready to go but without a customer (prebuilt configs) they put it in trucks and drove the trucks away from the docs. I don't know how they got their auditors to accept it as GAAP but they did and were lauded by Business Week, the WSJ etc for their cleverness.

bestham 5y ago
While impressive, this is only sustainable in a non-sustainable world. The burden that Dell unnecessary put on their suppliers have to be absorbed by the economy at some point. The single most important point that Toyota makes is stressing the importance of supply chain wide sustainability. Eg. by paying your suppliers ASAP and shortening credit lines, you should be able to get the parts cheaper than what you make of the interest.
- gumby 5y ago
  Agreed! I hope I didn’t come off as enthusiastic about Dell’s parasitic approach.

dragonwriter 5y ago

> "Just-in-time" means "no buffer". No, that's a degenerate fragile microoptimization inspired by seeing the short-term cost savings of just-in-time and going all in on those savings without understanding just-in-time. What “just-in-time” actually means is dynamically exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc.

sixdimensional 5y ago
Yeah, the original comment is way off. I worked for a major electronics manufacturing company helping with demand driven MRP (DDMRP, MRP=material requirements planning) and obsolescence (DMSMS - diminishing manufacturing sources and material shortages). I can definitively confirm that just-in-time is about trying to optimize the amount and strategic positioning of buffer needed to support the "right amount of production" to meet anticipated and actual demand, exactly as you describe. Now, doing that can be rather difficult in the case of black swan events. But the goal is as you describe.
jjk166 5y ago
> dynamically exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc. "Exactly enough" means "no buffer". You are simply mislabelling inventory as buffer. What people needed was buffer beyond what is cost effective given current expectations because something unexpected happened causing improbable supply irregularities.
- dragonwriter 5y ago
  > "Exactly enough" means "no buffer". “Exactly enough” means nothing by itself. “Exactly enough for X” means different things based on X. “Exactly enough for current production” means no buffer. “Exactly enough buffering as is cost effective given current expectations of forward conditions considering the likelihood of supply irregularities, cost of production interruption, costs of inventory, etc.” does not generally mean “no buffering” unless conditions are expected to be extremely stable, or response time to changing conditions from identification to new deliveries are near instant and there is negligible risk of that changing, or there is negligible cost (including opportunity cost) to production interruption.

drawkbox 5y ago

Very little margin and too much optimization/efficiency is bad for resilience. Couple that with private equity backed near entire market leverage monopolies/duopolies/oligopolies that control necessary supply and you have trouble. HBS is even realizing too much optimization/efficiency is a bad thing. The slack/margin is squeezed out and with that, an ability to change vectors quickly. It is the large company/startup agility difference with the added weight of physical/expensive manufacturing. The High Price of Efficiency, Our Obsession with Efficiency Is Destroying Our Resilience [1] > Superefficient businesses create the potential for social disorder. > A superefficient dominant model elevates the risk of catastrophic failure. > *If a system is highly efficient, odds are that efficient players will game it.* Over efficiency and supply chain concentration single point(s) of failure (China/Asia with chips especially across Hong Kong and Taiwan that make most of the chips) caused supply chain disruptions, some hoarding is also going on with chips. [2] The HBA MBA-itis and Chicago style thinking of excessive efficiency made the players that can compete larger and less of them, that takes away resilience and leads the market to gaming. The market has thus been gamed as the players that control it are more powerful in terms of market leverage. When you give up diversification and flexibility you get leverage and added weight to any needed quick changes as the large players attempt to control the market. [3] US is now building up silicon supply chains again [4][5], it was much bigger in the 90s/early 00s with Intel/Motorola/etc additionally, but business leaders allowed a concentration to happen and it led to market leverage. Hopefully that same mistake is not made in the future. It will take time to build up diversification of market leverage in terms of chips for availability. This chip shortage, and all the supply chain problems during the pandemic as well, will hopefully introduce more wisdom and knowledge into business institutions that just because things are ok while being overly super efficient, that is almost a bigger risk than higher prices/costs. Competition is a leverage reducer. Margin is a softer ride even if the profit margins aren't as big. [1] https://hbr.org/2019/01/the-high-price-of-efficiency https://hbr.org/2019/01/the-high-price-of-efficiency [2] https://finance.yahoo.com/news/china-stockpiles-chips-chip-making-210000407.html https://finance.yahoo.com/news/china-stockpiles-chips-chip-m... [3] https://www.bloomberg.com/news/articles/2019-12-03/china-stockpiles-foreign-tech-as-silicon-curtain-descends https://www.bloomberg.com/news/articles/2019-12-03/china-sto... [4] https://www.cnbc.com/2021/03/23/intel-is-spending-20-billion-to-build-two-new-chip-plants-in-arizona.html https://www.cnbc.com/2021/03/23/intel-is-spending-20-billion... [5] https://www.cnbc.com/2020/05/15/tsmc-to-build-us-chip-factory.html https://www.cnbc.com/2020/05/15/tsmc-to-build-us-chip-factor...

m463 5y ago

not only is there a shock to the system, every (sub)system has had shocks. I was talking to someone who was rebuilding a home, and the price of plywood went from $8/sheet to > $100/sheet Another person said that the company that makes 75% of the electrical panels had stopped production. those are just two pieces of the bigger puzzle, but since many if not all pieces have similar shocks, it would really surprise me if capacity could ever increase to meet demand.

TedShiller 5y ago

It is alarming that people don’t understand that this is just another way to say inflation. The government prefers to call it a shortage.

qaq 5y ago

Scary part same applies to clouds. People spend a ton of effort making things multi-region and multi-cloud yet there is not enouph spare capacity to absorbs AWS US East going out

tharne 5y ago

Fun fact, in the early days of lean manufacturing (of which "just in time" is a part), the practitioners often referred to it as the "fragile production system" for precisely the reasons you mention here. So yes, lean manufacturing is brutally efficient, but incredibly fragile.

PontifexMinimus 5y ago

> "Just-in-time" means "no buffer". We have, for decades, been doing as much as possible to make all our economic systems as efficient as possible, which is to say with no extra capacity. This is true, but I don't see an antidote. The government couldn't just tell businesses to "be inefficient"!