Posted on 05/20/2022 5:22:30 AM PDT by blam
The conventional wisdom at this time is that most of the world has moved on from the pandemic (except for China); therefore, supply chains will return to “normal.” Unfortunately, this is not the case. The world has permanently changed and supply chains are going to face continuing challenges for decades to come. Among those challenges are:
◾Supply chains will remain under constant threat of disruption for the next decade
◾Supply chains operate best when the world is peaceful and stable
◾A smoothly running supply chain requires “buffer stock,” which is challenging with declining population demographics
◾There is a conflict between environmental, social and governance (ESG) goals and supply chains optimized for cost and speed. If we prioritize ESG, we will need to contend with supply chain risks
◾Supply chain technology will become the big venture capital category winner as companies continue to make investments in technologies that can help them mitigate their supply chain challenges
In a world faced with the prospect of tightening supplies, higher energy costs, heightened geopolitical risk, and strained transportation networks, advanced supply chain technologies will become mission-critical for many more companies.
Supply chains benefit from times of peace
Anyone that has been a part of the supply chain industry can attest to the fact that supply chains have always been subject to disruptions. Natural disasters, terrorism, economic cycles, and capacity shortages have created challenges since the beginning of trade.
Since the end of the Cold War, global supply chains have benefited from peaceful trade between developed and developing countries. Many poorer and less developed countries that were previously ruled by Communist or autocratic regimes took advantage of new markets in the developed world and used global trade to move beyond subsistence economies to prosperous ones. Some of these countries developed into capitalistic and democratic countries, while other governments exploited the free market system to solely benefit those already in power, and became wealthy and powerful enough to threaten the very system that enabled their ascension.
The Eastern European countries that were formerly part of the Soviet bloc are examples of the countries that embraced capitalism and shifted toward democracy, while China did the opposite.
Dockworkers at the Port of Los Angeles.
Labor is key in supply chains
The arbitrage between the developed and developing countries has been massive. The cost of producing goods in countries with cheap labor, lax environmental and labor regulations, and little regard for sustainable natural resources has enabled the world to enjoy unprecedented prosperity and peace.
Because the goods produced in these parts of the world were so cheap, it made sense that they would be produced in excess. This buffer stock kept inflation in check and provided supply chains with ample supplies that could fend off short-term fluctuations and disruptions. Think about how the cost of televisions and computing hardware has fallen over the past few decades, and how auto prices haven’t risen as significantly as the many improvements in product features and quality were made.
This all happened at a time when the United States was the only superpower and the only expectation that the U.S. had of other nations is that trade should be unobstructed.
Cheap labor is becoming scarcer, particularly in Asia. This is largely due to aging populations – the average age continues to increase and there are fewer people to work in these manufacturing jobs.
Pollution in one part of the world can impact other areas.
ESG requirements hamper the stability of supply chains
Companies have instituted ESG requirements that require disclosures and monitoring of how and where products have been sourced. This pressure means that goods that are produced in factories that don’t match Western standards for environmental controls and human rights may not be available to Western consumers. The factories that do produce goods that match Western standards will often be more expensive and therefore there will be less buffer stock in the system.
The same ESG standards also create challenges for commodity producers, as the cost of adhering to environmental and social disclosures makes it more expensive and less productive. It also discourages investment in the production of environmentally sensitive commodities – most obviously in energy.
Environmental concerns and regulations that have prevented exploration and production and killed pipeline projects are largely the reason that the world currently lacks sufficient energy resources to buffer against the consequences of the Russia-Ukraine war.
In the previous three decades, supply chains have operated relatively smoothly because companies could source from around the world and not have to worry about global military conflict or autocratic regimes shutting down manufacturing. While international trade regulations were complicated to navigate, the world overall was trending toward larger, more open trading blocs – not just in North America, but in Europe and Asia as well.
As the United States has become more insular and has pulled back from being the world’s policeman, and China has started to flex its muscles and create a global competitor to the United States, the world has become far more unstable and less peaceful. This global friction is unlikely to go away. China desires to take Taiwan as its own, risking sending the world into a geopolitical crisis that is more dangerous than at any point since World War II.
Buffer stocks of products are far less likely in the future, as the cost of producing those items continues to rise. Cheap labor, offered by large populations of young people, is largely a thing of the past. This will make it more expensive for companies to produce buffer stock and far less likely that supply chains will enjoy the ability to absorb short-term shocks that are inherent to complex global networks.
Supply chain technology will be the big winner
Companies will look closer to home for product sourcing. They will prioritize production in countries that are far more stable and friendly to the United States. The Freedom Trade movement will drive supply chain professionals to prioritize production and sourcing in the Americas.
Latin America will become a big winner, as it benefits greatly from having direct land transportation networks with North America and seas that are well protected by the U.S. Navy.
The American South and Midwest will also see an acceleration in manufacturing and production, as they can offer predictable and resilient sourcing, without the geopolitical risks of foreign suppliers or the labor unions of the Rust Belt.
Automation, including robotics, will become more important. Nearshoring manufacturers will try to offset higher production costs with robotics and other automated production systems.
Supply chain market intelligence systems, a data category that monitors developments around supply and demand, will be critical for supply chain professionals who are trying to navigate increasingly complex and opaque markets. Materials and product supplies are no longer guaranteed, so the need for constantly refreshed data models that track the balance of supply and demand will be critical to the success of companies.
FreightWaves SONAR provides near real-time market intelligence information, which has seen explosive growth in recent months as shippers have realized that supply chains are not returning to normal and the need for high-frequency data is increasingly critical for success. Historical models no longer work – as the world becomes far less predictable, peaceful, and safe – and supply chains are far more exposed to supply and demand shocks.
“.our leaders are doing the exact opposite of needs to be done to deal with the situation. “
^^^^^^^^^^^^^^^^^^^^^^
Regarding food production, what should be done?
I know very little about this problem and would appreciate you input.
They would if they could. Economies of scale, manufacturing costs, and intellectual property rights often dictate otherwise.
Companies will be forced to shed a lot of their delusions about Just-In-Time (JIT) supply chains and revert, at least partially, back to Just-In-Case stockage policies. They'll carry more weeks of supply of products in warehouses.
How many weeks of supply? Depends on how long it will take to buy or manufacture replacements for their customers versus how much those customers are willing to pay for the additional storage fees and cost-to-hold of the extra inventory.
Manufacturers that are highly dependent on computer chips will likely risk carrying two years of additional inventories, knowing that technology changes quickly and those chips could become close to worthless if superseded.
One big advantage to shipping crude oil by rail is that it is more flexible and can respond more easily to changes in supply and demand on a geographic basis. A pipeline from western Canada to the Midwest will move oil from its source to its destination — and that’s it. A railroad that transports oil from western Canada to the Midwest today can change its operation to send it to eastern Canada or the Northeast next week. It would take decades for a pipeline network to be updated to respond to that kind of change.
Exactly. This is near and dear to my professional heart.
It costs less to transport a shipping container thousands of miles from Asia to a port on the East Coast of the U.S. than it does to truck that same container a couple of hundred miles within the U.S.
Rail transport of oil is also more likely to cause an environmentally adverse event. Derailings are much more common than pipeline leaks.
BTTT.
I know that!
The manufactured crisis of a supply chain problem is just another cudgel the Liberals will use to beat us over the head with
Bingo
Supply Chain = Things From China
We are seeing the results of three major mistakes. First, in pursuit of ever cheaper labor we outsourced the manufacture of everything from electronics to pharmaceuticals to China, a communist police state bent on world domination. Second, we gave up our energy independence to again seek imported oil from OPEC transported by vulnerable shipping. Third, we are willingly crippling our economy in the name of phony climate change hysteria that we now are finding has been funded in part by Russia.
Trump succeeded in restoring our energy independence, sadly to have it thrown away by Biden. However, given the will energy independence could be restored. We are starting to realize we cannot depend on China for any strategic manufactured goods and we should push for making more of these products here or at least in more reliable countries. Lastly, the Green New Deal is already being shown to be a pie in the sky fantasy. The folly of green energy will be painfully learned when we soon see major blackouts as a result of reliance on undependable windmills and solar farms.
If the election wasn’t stolen none of this would be...
No as long as Fauci and his ilk continue to breathe..
I remember once as a child, my mom made 'hogs-head-cheese'.
I finally discovered Epigenetics to explain how I inherited their 'depression' mind-set W/O it being in my DNA. I've been a saver/prepper my whole life.
All I know is an entire generation grew up on low interest rates. They seemed to go on forever and I think many assumed low rate environments were here to stay.
But with inflation so high lenders are not going to be as willing to accept low rates.
“I’ve been a saver/prepper my whole life.”
That’s what I like about you. :)
I, too, was blessed to be raised by TWO sets of Depression-Era Grandparents. All I have to do is remember one (or more; they were endless) of their stories about those days and I realize how little you can have, and still live a happy life.
As an American, I have WAY too much stuff - and don’t even get me started on all of Beau’s ‘treasures’ stashed around here. *Rolleyes*
I was already planning for a, ‘One Cup, One Bowl, One Spoon’ kind of life; Brandon is just speeding up the process for us all. *SNORT*
Shorten the chain and make more stuff in the western half of the world.
It was a magic wand.
Bronco did not have it.
I can’t believe that people FORGOT how bad the country was under Obama, how in the hell can people forget that mess, the division, the cost of EVERYTHING in just 4 years people were upset over damn tweets they FORGOT how bad things were in the country!! What the hell is wrong with people?
I think it’s because democrats coast on all the great things the Republican in office before them did for the first few years, and then as they start to break everything they leave and hand it over to the Republican to fix. And it takes a while to fix all the messes, but in peoples minds they often think fondly of the years under democrats and that the years under republicans were bad.
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