“Just in time” plans must give way to “just in case”

A few weeks ago, I ran into a problem that made any author cringe: on the day I published the article my book, Amazon suffered a supply chain failure and thousands of copies were lost. This sparked a battle for their position in cyberspace—or more accurately, which warehouse they were sitting in. At the same time, the website hinted that my book was not published at all.

Fortunately, the hiccups were resolved within a few days. But this incident illustrates a bigger problem: In the 21st century, we have all become accustomed to relying on super-complex supply chains that we don’t understand, and tend to believe that these supply chains are always effective.

However, in the past year, many of these supply chains have temporarily frozen or collapsed, and there are still problems even today. Sometimes the consequences seem trivial: For example, when I recently ordered a dishwasher, the website promised to deliver it within a week, and it has now been revised to a few months.

Other failures are more serious: Goldman Sachs estimates that computer chip shortage will hit 169 industries This year, U.S. economic growth will be reduced by at most 1%.with The doctor has warned In BMJ, failures in the medical supply chain affect far more than personal protective equipment, and even “endanger patients”.

Either way, the fact that these failures keep appearing is surprising.After all, economists have been warning for months Demand for goods and services If (or when) a vaccine is introduced, the entire economy will explode. At the same time, the tech giants also know us very well (and our underlying ordering habits).However, sudden local shocks, such as temporary Suez Canal blocked, Causing cramps. The Covid-19 pandemic and recovery have also made these systems out of control.

why? Part of the problem is obvious: the pandemic has caused factories to close. However, another problem is that Western manufacturers and retailers are so obsessed with the pursuit of efficiency and price reduction that they erode any buffer or reserve inventory in the system to absorb the shock. Or as a supply chain professor Nada Sanders, Notes in a recent article On The Conversation platform, “As customers demand faster delivery of cheaper products, the supply chain has given up all slack.”

There is also a less obvious problem: a risk management system that seems reasonable to the individual may be bad for the entire system.

We saw a version of this problem played out during the 2008 financial crisis, when many different institutions decided to insure their complex credit products against the risk of loss. This is wise on a personal level. However, due to the opaque nature of collective transactions, many of these institutions choose to use the same groups, thereby concentrating risks. The risk is finally magnified.

A similar thing is happening now in the supply chain: individual companies have been streamlining them in a way that seems to be the best and safe for every company. But because they often follow the same strategy, their activities have been focused on nodes that may falter or fail. It seems wise to concentrate computer chip production in Taiwan. Taiwan has developed economies of scale and specialized clusters to benefit customers. But this is dangerous for the entire system.

Rigid thinking can make the problem worse. Taking the British dairy industry as an example, Richard Bruce, a lecturer in supply chain accounting and finance at the University of Sheffield, has studied this industry. This is organized into three separate supply chains, centered around hotels, liquid milk and processed products. Although coordination was urgently needed during the first Covid attack, it was difficult at first, especially because antitrust rules prevented companies from sharing data.

Bruce said the good news is that, at least for British Milk, in 2020, a quasi-government agency will step in to implement a more comprehensive approach to the milk supply chain. Even better, the Covid issue has prompted “many companies and governments to rethink the supply chain” rather than just milk.

For example, management consultants are promoting the concept of “flexibility” in the supply chain when facing shocks, rather than just “efficiency.” The “just in case” philosophy of emergency planning is gradually eliminating the “just in time” mantra. The US and European governments are trying to create a more centralized supply chain database, especially for medical supplies. Bottom-up digital innovations, such as blockchain, may also help promote more coordination.

But the bad news is that it is never easy to instill a change in thinking mode, especially when a company’s executives are prone to narrow vision and are overly “efficient”. The costs and consequences of a global supply chain are often hidden from people’s sight. In the world. Consumers and investors. Ironically, this is a key theme of my (temporarily) lost books. The literary god must have the feeling of gloating.

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