Here we go again with yet another fretful look at our delicate global supply chain:
"Far more vulnerable than many imagined." Indeed. Why, all it took was a deadly and unprecedented global pandemic and suddenly our supply chains developed a few minor hiccups and then were unable to fully keep up with a sharp and unexpected rise in demand for goods. Who came up with this hot mess, anyway?
Seriously, folks: By any reasonable measure, our global supply chains came through the pandemic with flying colors. The truth is that most of us have suffered only in very small ways from supply chain shortages.
And keep in mind that not all shortages are even "supply chain" issues in the first place. Take cars, for example. The problem here is not primarily that the supply chain failed. The problem is that American car companies apparently decided the pandemic would last forever and canceled their orders for crucial chips. When demand for cars recovered, they had no chips because they had been allocated to other companies that planned better. That's a forecasting failure, not a supply chain failure.
Other shortages are similar. Gasoline prices are up thanks to high demand and OPEC+ limits. This has nothing to do with global supply chains. The price of beef is up because—well, I'm not sure, exactly. But some of it is because of worker shortages due to the pandemic. Again, that's not a "supply chain" issue.
I sometimes wonder what people think would have worked better than our current trade system. If we in the US sourced all our goods domestically¹ would everything have been great? Of course not. People still would have gotten sick; companies still would have been short-staffed or closed down entirely; managers still would have made lots of bad forecasts; and many items would be in short supply because there were few alternate suppliers. Other countries would be even less able to cope. It's almost a dead certainty that having a huge global supply chain with lots of different suppliers cushioned the effect of the pandemic rather than making it worse.
In many cases I feel like people say "supply chain problems" when they really mean "modern products are complex and have lots of different parts." This is certainly true, and those parts come from a lot of different places. The same is true of raw materials. If lithium is mostly mined in South America, then that's where you have to go for it. If rare earths come from China, ditto. One way or another, modern products depend on both raw materials and parts from a lot of different places, and there's nothing much we can do about that. A global supply chain isn't a choice, it's a necessity.
Long story short, I remain convinced that our global supply chains worked magnificently under enormously strenuous conditions. The fact that our ports and our trucks and our warehouse are bulging at the seams is evidence of this. I'm still waiting for someone to write the long version of this story.
¹This isn't possible, but consider it as a thought experiment.
One disruption we’d likely not have experienced with domestic production would have been port congestion.
Note ports were pushing through record amounts prior to and at the peak of the supply chain problems. Business schools teach the evil of excess capacity.
Basically I'll agree, Kevin, but with a big caveat. I also think our captains of industry have tended to carry the just-in-time model beyond its rational limits. When you reach a point where everything everywhere has to mesh just right, you've removed the cushion you need to allow for routine upsets in producing and moving the goods and services that go into what you're making.
Just-in-time, iirc, developed as a cult back when interest rates were high and had a significant effect on the cost of holding inventories. Toyota's lean operations here modeled it in the US and it caught on like wildfire. But rates haven't been a significant factor for many years. Now they're rising, but no forecast I know of is exactly in nosebleed territory. So the inventory calculation should be based on the cost of maintaining production inventory vs the cost of shutting down for parts, or losing sales to better-stocked competitors, things like that. (And maybe with a safety factor too, because you never know-- though your suits have to be willing to agree to that . . .)
So I think what happened is more that supply-chain glitches exposed the fragility of extreme j-i-t logistical practices. The wisdom, or not, of sourcing to single overseas regions is a different question.
yeah JIT is the real issue. Moving all production domestic but still operating with JIT wouldn't have changed much
Just in time took off after inflation and interest rates collapses. It was as much about freeing up space by eliminating on site storage, turning your trucking fleet into rolling warehouses.
I grant your point, but the Covid-19 pandemic was not a ‘routine upset’; the last pandemic happened a century ago. Upsets with very small probability, say a meteorite strike, will be treated as if the probability is zero.
To the clause "If we in the US sourced all our goods domestically,..." there is a footnote that says "This isn't possible, but consider it as a thought experiment."
Now substitute a much less ambitious self-sufficiency paradigm:
If we in the US sourced a few critical goods domestically,..." Well, what goods would those be that we currently import?
(1) Computer chips
(2) Steel
For one thing, we'd have a lot less delays in manufacturing quite a few of our consumer goods. But also, in light of what Russia has been doing, maybe we'd have a lot less concerns about our ability to ramp up our production of critical defense items.
In 1940 some Japanese military leaders tried to warn the Emperor against attacking the US, because our industrial capability would surely bury them. And 80 years before that, some Southern leaders tried to warn their politicians that war with the North was hopeless, because the North's industrial capability would surely bury them.
Now, though, where are we, when we depend on China for chips and steel, two products that we used to be the leaders in?
Are chips for defense uses actually made overseas?
Given that the federal government, including DoD has had a long-standing policy encouraging the use of commercial off-the-shelf (COTS) products, I’m sure there are quite a few. Security isn’t an issue for chips defined by programming (FPGAs as well as processors), which would be performed in the US by cleared personnel.
"Now, though, where are we, when we depend on China for chips and steel, two products that we used to be the leaders in?"
Hopefully in a position to think carefully before waging war on a country comprising 1/5 of humanity?
I'm not sure exactly why we want people in the US making more steel. We make a 100 million tons per year of it, and while, sure, we import about 26 million tons a year, I'd rather we focus on manufacturing things like cars, airplanes, turbines, and advanced medical equipment than redirecting our economy to produce more of a basic input commodity whose price is set on a global market.
Mainland China is not an important player in chips
Nor has the US gotten steel from china since Obama imposed up to 620% tariffs on chinese steel.
The disruptions may not have been as bad as one would think from the media, but that doesn't mean that supply chains worked "magnificently". The old system, in which there were sizable inventories, would almost certainly have worked better when transportation was disrupted than the "just in time" system. Of course the old system was less efficient, meaning prices were higher. Manufacturing of all those parts, like computer chips, has been dispersed not because of resource distribution but because of lower labor costs in less-developed countries. There has also been deliberate monopolization of some things, which is not a good thing in case of pandemic or war when the monopolizers are in another country. The US has rare earths, for example, but our industry was deliberately destroyed by the Chinese. The US now makes essentially no new steel, while China makes about half the steel in the world.
The covid pandemic was actually not as bad as was feared - the next one could be much worse (since little has been done to prepare for it). There are still possibly more serious consequences of globalization as it has been done so far, that is as far as the US is concerned almost entirely for the benefit of corporate profits.
We don't really need a lot of new steel. It's cheaper to recycle it than to make new steel, and we already recycle a big percentage of our steel supply (something like 80-90%).
And whenever we try to restart say rare earths, the environmental lobby goes ape…
Labor is a trivial component of chip manufacturing. Fabs employ 100s and cost 10s of billions. You can employ a lot of people for a very long time with 10 billion dollars.
So, it's not the supply chain but triple P. Piss poor planning.
I’m still puzzled by the Rice Crispiest(c) and wondering if that was a supply chain issue or an obtuse reference to a joke that sailed completely over my head??
Globalization run amok is mostly the issue. There needs to be redundancy in the system but that costs money. Also limited amount of autarky is desirable. The old Neo Lib idea that global trade will beget peace and freedom is dead or at least it should be.
The US government should really just keep bigger National Reserves/stockpiles of key components and materials, such that we could wait out a year or two of supply chain disruption. We do that for oil, but we could be doing it for agricultural commodities, for metals, for processed food*, and even for stuff like computer chips.
We're not exactly lacking in space for them, and it would probably be cheaper than trying to prop up a bunch of domestic industries via protectionism in the name of resilience.
* China has something like a one year's stockpile of wheat in reserves. The US could easily do that for agricultural products and even processed food (store a bunch of stockpiles of emergency food for natural disaster distribution and so forth).
We do have a fair amount of stuff squirreled away, but as we found out, not all of it was up to date. Some of the stored PPE was falling apart--in part because Republican kept trying to defund the program so some items were over 10 years old and dry rotting.
The best we could do would be to require larger companies maintain a minimal level of component inventory. Of course, if there's a product redesign, those older components are useless. And if the new components have to be stockpiled, then that will cut into the supply of new products.
At the state level, in CA there was plenty of clusterfnuck wrt PPE and field hospitals being sent off in the name of budget woes, not to return. GOP not required.
You seem to be using a very narrow definition of "supply chain". The supply chain is more than just transportation. Car makers saw their sales drop at the beginning of the pandemic and so reduced their orders for the chips that go into cars. When demand picked up again, they increased their orders, only to find out that the chip fabs were unable to fill those increased orders because they were already running at full capacity and were unable to increase their output. To my mind, that's a supply chain issue. An inability to quickly adjust goods production to meet changes in demand is very definitely a supply chain issue, with the usual knock-on effects you expect when there is a problem with one link in a chain.
This was a wake up call for the car companies that they were are no longer the 10 ton behemoth at the table. Prior to this event, when they said jump their suppliers did everything they could to comply. Now, when they want chips the suppliers say when there is free time not used by filling our cell phone customers.
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I feel like we're living in separate world views.
What happened during the pandemic in the factories, ports, and the last mile will end up with a push for greater automation of robotized work to limit the effects of humans getting sick. Bulk goods will end up as made-to-order at the factory, delivered on-time, in a nearly human-free environment.
For some reason I often can’t find caffeine free Diet Coke in the 500 ml bottle. This is a catastrophe. And today at the grocery store I couldn’t find Prego sauce with mushrooms (except in the extra large size). I had to buy the herb and garlic version. This is a huge supply chain fiasco.
Get a grip Mr. Drum. I’m not interested in making my sauce with home grown tomatoes and mushrooms. And you definitely don’t want to drink the tap water in Michigan.
The serious response is to say that all the crap we buy from China and all the raw materials we get from Russia and the evil Muslim fanatics in the Middle East and Africa are things we should try to do without.
It’s time to redefine “convenience” in a way that sustainable and allows us to punish these evil Russians, Chinese, and Muslims.
A covert operation to destroy all Russian gas pipelines in Ukraine would get my support.
Basically, what lawnorder said. You seem to be defining “supply chain issues” as excluding, what, issues with known causes? Issues that were caused by incorrect assumptions? I can say with certainty that my company has been dealing with supply chain issues since the pandemic has started and it has taken a tremendous amount of time and cost a tremendous amount of money. The fact that we can’t get components and materials is a very real issue.
Exactly. This is my experience too. I work a a manufacturing plant. It’s nuts.
If we in the US sourced all our goods domestically¹ would everything have been great? Of course not.
Of course not, indeed. Living standards would be unfathomably lower for the vast majority of Americans. It's a very good thing this is impossible.
I don’t think it follows that living standards would be lower without globalization. I think there might some things we have today that we might not have, but so what?
Living standards aren’t the same as having the latest gadgets. Whatever happened to Motorola? Sold to a Chinese company? What killed them off? The China shock?
Was 1985 that bad for most people? No, of course not. Globalization was a choice that people made for us. It’s turned out badly if you ask me.
You really think there wasn't vast amounts of trade in 1985?
Also, if you think trade is just about having "gadgets" there's probably not much sense in discussing this with you.
Maybe I misunderstood your comment. I was referring to living standards, not trade.
Yes, and Jasper's point was (probably) that your musings about how everything would be fine if we undid globalization because we'd be back to 1985 standards of living and that would be just peachy are foolish because the 1985 standard of living enjoyed by folks in 1985 *also* depended on globalization.
“The result has been a globalization on steroids. In the 2000s, global exports reached a milestone, as they rose to about a quarter of global GDP.“
https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-into-the-history-of-globalization/
At this this point, with malevolent dictators empowered by “globalization on steroids”, I muse about whether this is actually going to work out ok.
"The price of beef is up because—" It takes 4 years to repalce breeding stock and have the offspring of those breeding stock ready for the slaughterhouse. Cow pregnancy is as long as human pregnancy.
I think the differences highlighted here are “Supply” vs “Chain”. Supply limited by production not delivery. Most articles focus on ports and delivery.
Drum is correct - the "supply chain" of goods performed as well as could be expected.
It's the recovery from the pandemic that is the problem
We still have the same amount of lithium the same amount of oil. Company's have the money to get those things and turn them into products.
Whats missing? The labor
Over 10% of the oil workers are not back on the job because of retirements and fear of catching covid AND not wanting to have to work THAT HARD.
The problem here is that DRUM and many of us are trying to compare pre and post pandemic supply chain issues when the main problem is a labor shortage IN the oil fields along with far too many other fields
And to top it off WAPO reported today that for the first time deaths exceeded births in the U.S. last year
The great American baby boom-gone-bust adjustment has begun - exacerbated by the pandemic
Whats missing? The labor
Over 10% of the oil workers are not back on the job because of retirements and fear of catching covid AND not wanting to have to work THAT HARD.
The problem here is that DRUM and many of us are trying to compare pre and post pandemic supply chain issues when the main problem is a labor shortage IN the oil fields along with far too many other fields And to top it off WAPO reported today that for the first time deaths exceeded births in the U.S. last year.
Vog46 exactly on target.
One more thing, the oil companies are cutting their own throats. The more they limit production, reasonable or not, the more they're literally driving people to electric vehicles. I know oil used for more than gasoline or diesel but it's a good chunk of what it's used for.
I think the idea of dumping all the oil in the strategic reserve and the government making a deal to producers to fill it back up with their oil to guarantee at least some profit is good one even though you're basically subsidizing them. I'm aware of that. But it will lower prices and start to ensure production again as investors know they'll get a rate of return.
spatrick
I read an excellent article regarding gas prices on NPR the other day that alluded to this regarding oil field employment
But take that same outlook to another field - construction
If housing tumbles ANYONE who is age 62 or close to it will "retire" rather than go back to construction when things turn around. There will be labor shortages in many industries because of this situation.
Our work force was "aged" pre-pandemic anyone who was close to, or at retirement age re--evaluated their situations in the face of the pandemic.
So now we have the perfect storm of sharply increased demand for goods and especially services and nobody to fill those rolls to satisfy that demand. Add into that the sheer number of jobs that have been created SINCE the boomers went to work and the different fields they are in. Amazon was not here when the boomers entered the work force. There was no Uber, no grocery delivery companies. The list goes on. "graphics" to us boomers was the weekly chart of the Dow in the sunday paper. Now Drum goes crazy with charts and graphs as do many others - on the internet no less - not in a paper.
But as we boomers die off and the population growth goes negative housing will change too. For Boomers their vacation homes will come on the marker, as they die off and the demand for new homes will decline just by having LESS people buying.
Its a slow moving train wreck that everyone KNOWs will happen and now its made worse by less people in all facets of the work force.
We've relied on immigration to maintain our population and our workforce, esp. in service industries.
Wealth gap, locking people (not just immigrants) out of the American dream, etc., has hurt our country.
Should also point out, as boomers remove money from markets to pay for their retirement, stock prices will fall.
This whole pandemic has been one long, tedious exercise in jumping to conclusions, breathless hysteria, and turbo-charged recency bias (cities are dying!).
I agree with this--if the definition os "supply chain" is "the system that gets stuff moved from A to B".
However, the supply chain, as commonly understood includes manufacture of the stuff that gets moved. Brake pad manufacturers are part of GM's supply chain, not just the trucks that transport the pads to the GM factory. This means that in essence the whole manufacturing and shipping industry is the supply chain. If a crucial factory closes for a month due to COVID it is called a supply chain problem.
I think what the term is really meant to convey is how fragile our economy has become with its world wide division of labor and massive trade all over the place, combined with "just in time management. Every small problem somewhere can have worldwide follow on effects and those are what we have come to call "supply chain problems:.
Our media are so obsessed with easily packaged talking-point phrases like "supply chain failure." It's funny because before the pandemic, the term "supply chain" only appeared in business news or industrial engineering analyses.
Speaking of banality in media messaging, today on the TV machine, a story about how the Russians slaughtered 300 civilians in that Ukraine theater was then followed by a story that people returning to their downtown offices were likely to start experiencing "lunchflation."
Why is it that the world hates us again?
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