There are often strong disincentives, as well. Nike, for example, got themselves into trouble when parts of their supply chain became public. Many more companies regard their unique supply chain as a competitive advantage. So, even if you should take up the time, effort, and expense to research your own supply chain, there's a high likelihood that your upstream vendors will have no interest in sharing their suppliers with you.
There are exceptions to this. Reportedly Apple has excellent supply chain visibility, but they've achieved it at great effort.
(I'm by no means an expert, but I used to work for sourcemap.com, an MIT startup based around the idea of understanding supply chains end-to-end.)
Also applies to software supply chains:
https://www.platformsecuritysummit.com/2019/speaker/sherman/
> Today’s software is largely assembled rather than written, and most of the assembly comes from open source components. The creation of components and their inclusion into applications creates a “supply chain” just like in conventional manufacturing. While physical supply chains have well established chains-of-custody to establish properties like refrigeration maintenance, authenticity or spoilage avoidance, the software supply chain is very much a wild, wild west, filled with vulnerabilities that can be (and are) inadvertently inserted into applications. As supply chain risk and mitigations are being explored by government and academia, a larger attack surface is being uncovered that needs to be addressed.
We laugh about golf and Vegas visits, but it's really hard to stab someone in the back when you're used to looking them in the eye. If they're just some suit you meet once every three years? Fuck 'em.
- Counterfeit components, like memory out of spec that creates scaled failures.
- Fake products from the channel.
- Fundamental mistruths with regard to how services are delivered.
- Poor operational practices for maintaining SLA, especially for off-shored services. Those ops folks will move mountains to meet the minimum standard of "up", but will allow problems to fester.
- Fraud. Fake on-site employees sending work back to a boiler room with people actually doing the work.
- Fraud. Named users actually being fake people sharing a credential. In one case, a colleague in a manufacturing case discovered this when he accidentally received a link to an open video stream of a MFA token.
- Fraud. Stuffing fake or inferior products into orders. Example: Order new laptops, find a bunch of refurbs in the pallets.
Basically, people suck and if you primarily make purchasing decisions based on price, and you care about what you are buying, you need to treat the counter-party as a potentially hostile actor and assume that you are going to be ripped off.
But generally value derives from multiple independent credible verifiable audit mechanisms.
Yes you do. You get exactly what you pay for. If you pay for a dozen of German inspectors who think Chinese factory produces junk that is outside the spec, a dozen of German inspectors with that attitude are going to do inspections. If you do no want to pay those German inspectors, you are not going to get those inspections.
In most of the cases companies do not want to pay for it. Apple manufactures amazing iPhones in China. Apple iPhones easily last 5-6 years. Blu manufactures crappy Android phones. They barely last a year. Apple's iphones cost more to manufacture than Blu phones sell for.
But when you build ongoing relationships, you get benefits from not pushing for the bottom dollar at all costs.
A company with a reputation for quality can charge more, because you don't need observers and can just rely on them. And they want to deliver on the reputation, so that they can keep milking it.
JS Mill has some interesting observations going back a ways.
Auditing is still recommended.
Ignoring auditing for a moment:
The trustworthy reputation is quicker to build, if the quality of the product is easy to ascertain quickly.
But if you are a company in a sector where that's not possible, the reputation for quality becomes even more valuable.
And you can potentially ride it out for a long time in an exit scam. https://en.wikipedia.org/wiki/Exit_scam
This is a classic bait and switch in many online work platforms. The person who interviews for your open contract/role is not the person who does the work.
Curious to hear examples if you can share.
He could jump into the flow of parts and information for a specific printer model from 10 years ago. He knew the reasons for each steps like import tax avoidance, cost/benefit analysis of using one vendor/shipper/etc, or even that they used to have a specific engineer at that one factory who was amazing at QA and tolerance checking or something like that. When teams were behind due to supply chain issues, he would jump in to analyze their process. Sometimes that meant combining it with ongoing flows like "This factory here makes a part like that for product X, I'll get you a sample so you can adapt it into your product to rework."
He had immense company value and history committed to memory that he tried to pass before leaving as teams moved to India or China. But I doubt anyone at a decision making level was aware.
> He knew the reasons for each steps like import tax avoidance, cost/benefit analysis of using one vendor/shipper/etc, or even that they used to have a specific engineer at that one factory who was amazing at QA and tolerance checking or something like that.
Excellent example. Some of those you wouldn't be allowed to document in writing, even if you wanted to.
Ideas like regionalization and flexible manufacturing are great ideas, in most cases, the capital machinery of factories are relatively easy to replicate and setup (harder than software, but much easier now than any time in the past). However, the economic and accounting system needs to balance out the global employee wage differentials for it to gain any traction.
Tariffs have been hated on economically, in part because the analysis values the generic profit creation over the risk; but it seems like one way to balance wage differentials to encourage de-risking our supply chain. I'm sure there are other maybe better methods?
Add 10% of the value of all inventory sourced outside North America as a "risk liability". Same for 10% of yearly labor that's outsourced.
Basically find ways to make short term thinking visible in their financial reports, since that's what's measured and rewarded.
Companies are required to disclose significant risks, but the quality of that disclosure...varies.
Mostly these kinds of risk factors are mentioned verbally in their reports at the moment.
Insurance obligations -- auto, health, life, C&L, bonding, mortgage and title -- are generally required by or offered via third. parties. Sometimes governments, but often creditors, counterparties, employers, or other entities.
If you have to shut down your business, that's mostly impacting your business in a very direct way.
What do you mean by 'balancing wage differentials'?
Global trade is on of the best ways to balance wage differentials. That's how China had crazy catch-up growth in the last few decades.
(Another great way to help poor people get more productive and thus richer is open borders.)
If downstream customers want to de-risk, they should pay for it. Either by setting up their supply chains differently, or by outright purchasing insurance, etc.
If they choose not to engage in this expense, perhaps they are right, and just bearing the risk is overall a better trade-off? Who are we to tell other people what level of risk aversion they should have?
Of course, once the calamity hits everyone wishes they would have bought prepared or bought insurance. But that doesn't mean we should all go out and make our roofs asteroid impact proof, or never ever go out because we might break a leg.
good tariff policy is hard to achieve in divisive political environments however. for instance, in many cases, you'd want them to go away dynamically as conditions improve, but lawmakers hate giving away their levers of power.
Food is often used as the counter example, but IMO domestic production is less valuable than a multi year stockpile.
nobody is going to stockpile food or consumer goods when you're demonized for charging more for them when the demand goes up. there's no way to do anything but lose money on it.
PS: At the extreme end Honey can be stored for thousands of years at room temperature.
Easier to image with a 1,000,000% tariff: nobody would actually pay the tariff, so there's no dividend to distribute. Yet, you get an economic impact.
You still get deadweight losses from lower tariff levels.
Further, unlike a direct subsidy it’s adding tax revenue.
I don't see a connection between tarrifs and risk in a supply chain. Infamously US autos which refused to adopt Tailorism or other cousin methodologies for reliability wound up being expensive crap compared to Japanese car makers. It is a peripheral variable at best or an irrelevant one at worst.
Tarriffs as a solutio resemble opportunistic timing to not let a crisis go to waste rather than addressing a root cause.
The only reason there's any question who's the richest person in the world is that Sam Walton is dead.
(Trivia) EDES was one of the few users of RPL (RapidGen Programming Language) - Decision Table based, and running on PDP11s and later MicroVaxs.
https://www.cbronline.com/news/sterling_commerce_buys_into_u...
I haven't been at many companies where a customer paid us money specifically to build up capacity for them first. Most of the time I've had to ramp up, we had to pay for it out of investment dollars or scraped out of contracts specifically for deliverables. Even when we special-built a feature for a customer, we still had to find a way to generalize it for others to turn a profit on it, and that was out of pocket.
Apple has apparently paid a number of manufactures to get good at something in exchange for a short lockup period and a permanent discount on orders. Which I think is why when Intel tried to make their first direct Macbook competitor, it turned out their margins were razor thin compared to Apple's.
And enormous expense. You shouldn't have to have Apple money to establish visibility into, and security of, your supply chain. I mean, do you really want to be down in the weeds trying to make sure the coltan isn't essentially coming from Rwandan warlords? Apple can afford that, most people can't.
You could, by default, have lots of visibility in your supply chain. Or you could get a substantial discount in return for giving up on that visibility.
You are arguing that the discount should be smaller?
if you know more companies / projects in this area, I would love to know. It's of course wiser and easier to do b2b in this space, but there's also the dual problem from the consumer side of getting to know the supply chain.
It would be so great to have a portal where I can scan a barcode and get to know the whole chain of production.
I am going to bookmark this thread in anticipation of this phenomenon.
"Nobody could have foreseen what would happen when the world’s second-largest economy went offline and completely shut down external logistics connections."
Exactly what they said about the housing bubble. Honestly, how many people on HN and elsewhere couldn't anticipate this? I think the main thing that has caught everyone by surprise is just how comically unprepared we are for this. And the overwhelming sentiment I've been getting from the memeplex is that this situation is entirely the fault of Trump, when he fired Obama's pandemic team. Not only is this not actually technically true, the idea or insinuation (dog-whistling) that the extension of that team would have mitigated this whole thing seems to be quite unlikely, to put it mildly. Oh yes, of course having this team in place would have improved things - but by how much, and under what counter-factual scenarios?
These are the discussions we need to have, but I don't think Western culture as it is is capable of having them. We need to wake up and realize the human ego is the root of all of these problems.
It is of course both. Global supply chains and JIT delivery have made us more fragile. But China reacted well - locked down a region of 60 M people - then sent in the resources we of 1.5 BN to stop the spread to the rest of the country. Now they are basically hanging on till a vacccine.
USA pandemic teams probably had similar plans - shutdown California for example - in other words steering away from the worst of the icebergs.
Is China's strategy "best"? Hard call to make - especially now. But it beats many many alternatives.
Also Trump 'dependence on China is a huge problem'.
Dependence on <x> (where <x> could be China or many other things) has been an obvious risk across numerous dimensions for a very long time now. Many of these ideas have been discussed here, although not in a manner befitting for the gravity of the matter.
That even on HN we are often unable to engage in unbiased, purely rational discussion has been another big systemic risk that I have been banging the drum about for months. It makes a person start to wonder: what will it take for people to wake up? Maybe it isn't even possible?
Companies already bear the costs and benefits of their resilience. So it's already internalised.
You could, however, pass a law that specifically allowed people to charge whatever prices they can get a customer to agree to pay; and ban all laws outlawing such pricing.
That way you would give companies an incentive to be especially resilient in the face of disruptions.
Right now, you are mostly not allowed to sell hand sanitiser for thousand dollars a bottle. So the incentives to become so resilient that you are still producing when everyone else has shut down and you can charge these kinds of prices, is kind of dulled.
Just want to add that this same story is playing out at the individual level right now, as well. Milk comes from supermarket shelves, not cows.
Supply chain management is like 50%+ of all manufacturing industry. I think you must be responding to the idea of like a hospital not knowing where their masks come from- and I don't think thats the focus of the article.
Carefully sourcing parts is one thing, tracking the whole supply chain of where your suppliers get their materials is another.
Except Walmart
Relying on only one country seemed as foolish then as it seems now, but we haven't learned the lesson yet.
That's a genuine question, by the way. I'm curious.
I'm not sure if this is practical to actually implement, but if you increase tariffs based on how many of each item you're shipping, it would eventually be cheaper to manufacture some of them in the United States.
Example, first million widgets have no tariff. Next 500,000 are $0.02 per widget. Next 500,000 are $0.03 per widget and now it's cheaper to make those last 500,000 in the US.
And for companies with smaller runs, like 50,000 widgets, the volume savings might not make up the extra cost of dealing with Chinese manufacturing (shipping, time zones, language barriers, etc.)
The biggest trouble would be setting those values at reasonable levels based on different industries. Not sure if you could actually do that in a way that scaled to EVERYTHING manufactured in China.
Reminds me of the concept of "protecting players from themselves" (https://www.youtube.com/watch?v=7L8vAGGitr8)
Good idea.
There is an incentive for now. When the current supply shock goes away, the old market pressures will reassert themselves, and those companies whose supply chains are narrowly focused on the lowest-cost/highest-quality producers at the expense of diversification will outcompete those whose supply chains are diversified.
The parent questioner is asking, in essence, how can we turn this incentive from a one-time shock into a continued incentive to maintain diversification? As it currently stands shocks are far too unpredictable and episodic to serve as a market incentive. In practice, people don't diversify unless there's a constant and ongoing pressure for them to do so. It's much easier and cheaper to find a good supplier and rely on them as much as possible.
Today the supplier can not only sell to the company but to the consumers directly significantly cutting company's ability to level the price so the company is forced to drop the more expensive suppliers
We don't generally make our roofs asteroid impact proof, either.
The thing is that these dependencies are a feature and not a bug on several levels, both in terms of trade promoting peace and the efficency involved. Put the should we philosophical questions aside and there are a few precedents to look at and hypothetical solutions.
One way is through subsidies for deliberate overproduction are the way done for food - but that is also a market where the fungibility and nutrition encourages varierty to some degree. Again it is inefficiency by definition - generally done for things where it is believed/claimed to be better to have the waste than running out.
Another is in "national security" pork where it is often more an accident of the pretext than neccessity. Needing American screws for DoD gear.
Some sort of international robustness treaty/trade deal could be devised per sector that say any country may subsidize or tarriff industries up to say N% of their basic demand but once it gets beyond that they need to stop or start tapering off, perhaps with varied threshholds. That would no doubt be a bed of weeds as everyone tries to privledge their own interests and plays games with classifications.
You lose some efficiency but gain in resilience. Nowadays big internet companies have all sorts of Disaster Recovery plans.
Are you keeping your own data center in addition to the AWS/GCP/Azure? Because that's the exact same premise.
But I can see how you came to that reading, and it did give me a chuckle.
Yes, this would require subsidies & regulations, and be on a quarter-to-quarter and in most fiscal years "inefficient" use of capital, open to accusations of "waste", "boondoggle", "featherbedding", etc.. Yet, we're happy to pay firemen to polish their trucks while they wait for a fire to happen, or soldiers to 'squander' ammunition shooting at paper targets when there is no war.
Somebody needs to be thinking and acting on more than just shareholder value for the current quarter if we are to remain a nation.
Today, a few generations of people are unfamiliar with the idea that a corporation could act in ways that are consistent with the good of the community, or optimize for long-term growth, value & sustainability.
https://review.chicagobooth.edu/economics/2017/article/it-s-...
I am not sure, a completely dependent world may make us safer as wars will very hard to execute.
China has a near monopoly on a lot of production. Countries that depend on them certainly won't go to war with them, but that doesn't hinder China from starting a war with those countries, and even gives them an advantage. And it doesn't stop dependent countries from warring with each other and that could even be beneficial to China.
N.B. I use China as an example only. Replace China with any country that might have a near monopoly on production of some kind. The point I'm trying to make isn't "ahhh China scary", it's that interconnectedness may only prevent war if it's actually interconnected, and not a monopoly.
I think the "global interdependence reduces war" hypothesis is pretty strong.
And if the seller is a monopoly on a critical good while the buyer is a tiny fraction of their business, the relationship is asymmetrical and the seller won't suffer nearly as much from a war.
But it does open up avenues for conflict less intense than invasion. The term 'weaponized interdependence' has recently been coined for this. An exploration:
http://henryfarrell.net/wp/wp-content/uploads/2018/05/Weapon...
It was more a claim about Western European countries, which, propaganda aside, were not puppet-states of the US.
Cold-war era US puppet-states were different, and at the time mostly didn't tend to have Macdonald's, at least outside of a capitol. We were busy subverting their democracies, and civil unrest doesn't go well with Big Macs.
Interdependence, even to the point that war is utterly ruinous with no upside, is no guarantee war wont happen, don't make the mistake most people in Europe did before WWI
I think it's popular today as a distraction from the fact that the American Empire is really held together by military occupations in Europe, Asia, the Middle East, Latin America etc. and not economic ties. Obviously "we just want to make you rich" is much nicer sounding than "we will bomb you if you resist US hegemony".
A major rising power that feels it is being denied its "rightful place" in the world order by the existing power brokers (Germany vs the UK/ China vs the USA) lead by a hardline leader that isn't interested in compromise (Kaiser Wilhelm II/Xi Jinping)
A series of interlocking mutual defensive pacts that will automatically draw nations into war (The alliance of the UK, France and Russia vs Germany and the Austria-Hungary Empire/NATO vs China and Russia)
Regional fighting that is close to leading to direct confrontation between said power blocks (The Balkans/Turkey and Syria)
Rising Globalism and trade interdependance, along with rising nationalistic rhetoric and jingoism, and intense competition for influence in 3rd party states (The scramble for africa/Africa and south east asia and former CIS states).
The major powers slept walked into a horrible war because the rising tensions made it inevitable, and nobody took heroic steps to stop it, sadly it looks like it might be happening again.
Nobody wanted a ruinous war, and most people thought that there was no way a war could really occur or at the very least be sustained due to the need for trade. (Germany at the start of WWI was critically short on stuff like gasoline, fertilizer and the raw materials for gunpowder)
It Happened anyways.
Don't think for a second it can't happen again.
For NATO, the key part is Article 5 that specifies "armed attack against one or more of them in Europe or North America shall be considered an attack against them all", and is intentionally drafted so as to not apply to "Cold war turning hot" in Asia (e.g. the Korean war or Vietnam war or Afghanistan or Iraq) and to any "non-core territories" e.g. French or British overseas territories or pacific islands like Guam. Heck, a literal repeat of Pearl Harbor and invasion of Hawaii would not trigger Article 5 (though NATO could and would likely take action despite not being required to do so) - the NATO treaty is explicitly designed to not draw nations automatically into war unless USSR or someone else starts WW3 in Europe or attacks mainland USA. It's hard to imagine any Chinese actions regarding their ambitions (e.g. South China Sea, Taiwan, Hong Kong) that could trigger the NATO Article 5 which would automatically draw nations into war, anything in Asia would give each nation a choice whether to get involved and if so, how much.
I'm not informed about the Russia-China treaties much, but IMHO they also don't have any strong mutual defence pacts, they have some limited military cooperation and sharing but that's it; they had a mutual defence pact in 1950s but that's long gone now. For example, there's the https://en.wikipedia.org/wiki/2001_Sino-Russian_Treaty_of_Fr... where the strongest relevant obligation in Article 9 would require each party, if it's attacked, to.... immediately contact the other and consult about the situation; it does not include any agreement or obligation to actually do anything about it.
But "safer" doesn't necessarily mean "no wars." It's rare, but sometimes wars are just (e.g. ones against those who commit crimes against humanity). A world so economically interdependent that war is truly unthinkable is one where even peaceful coercion like sanctions are too costly to pursue. I don't want economics to enslave morality.
We have strategic reserves of petroleum, foodstocks, and other necessities. It is time to think about the same with medicines, medical supplies, and common household goods.
The conclusion from this is that, unless there is regulation directly addressing this, nothing will change, because the market forces are what they are.
THIS.
My brother-in-law owns a company and they put in place a ton of redundancies after the 08' crash. They're in a specialized manufacturing. After 6-7 years of stability and some of their markets recovering and stabilizing, he started getting pressure from his two partners to cut the safety nets and re-invest it in supply chain improvements. He was against it saying the same thing, "This isn't a five or six year plan, it's a permanent plan to protect the company." In short, he was outvoted. The redundancies were removed and the money was re-invested in other areas. .
The last week basically saw their entire supply chain shut down, almost all of their customers shut down and yesterday they had to send everybody home and shut down themselves for the time being.
My brother in law texted me saying, "This is the worst fucking "I told you so" in my life, I'm not sure we can survive this." He's meeting with his partners this week to assess the damage and how long they can survive before they'll need an influx of capital to keep the lights on.
Had they kept all of their money tied up in their emergency plan, they would've been able to pivot to other suppliers and continue to serve their clients. Right now? They put all their eggs into one basket and it could very well kill the company.
A few examples:
1. the US has built up it’s oil producing capability. If the Saudi’s keep prices low, then everything will be mothballed. So the ecosystem of businesses and skilled staff supporting the US oil industry will massively degrade quite quickly. It can’t be ramped up quickly later.
2. Huawei. Massive shock of US sanctions. Can only be saved by amazing levels of support by Chinese govt.
3. Rare earth production. China took over the market, then shut down all exports. What producers were left and why did they still exist?
It's easy to look at Steve Jobs and Jeff Bezos and think that a sufficiently charismatic CEO can use his or her "reality distortion field" to hypnotize investors, but it doesn't work like that over the long run. The reason investors had such patience with Jobs and Bezos is because they were demonstrably increasing their companies' market share and profitability, respectively. Under Bezos, Amazon went from a niche seller of books to the largest e-commerce site and one of the largest retailers, online or off. Under Jobs, Apple went from a has-been computer company kept alive as a prop for Microsoft to wave at the DoJ to a leader in personal computing, consumer electronics and the most profitable corporation in history.
Do you think that shareholders would have kept Bezos and Jobs around if their strategies had not been delivering the tangible results, quarter after quarter, year after year? I think not. For proof, we can only look to Yahoo, which spent an enormous amount of time and money wooing Marissa Meyer from Google, only to ignominiously fire her 5 years later after she was unable to arrest Yahoo's declining profitability and relevance.
A CEO of a publicly traded corporation, especially a publicly traded corporation that is financial trouble, only has so long to demonstrate success, where "so long" is measured in months or, at most years, not decades. If the CEO cannot demonstrate tangible results within that time frame, he or she will be fired, no matter how powerful their "reality distortion field". CEOs cannot transcend the crowd-sourced incentive-based decision making of the market over the long term. What the can do is spin a good story that persuades the shareholders to leave them alone for a brief period of time as they attempt to make the necessary changes in order to improve or restore profitability. If they are unable to do so, they are summarily dismissed, and replaced with someone else who can tell a better story about how they're going to improve the profitability and efficiency of the firm.
No amount of Jeff Bezos or Steve Jobs charisma is going to be sufficient to persuade shareholders to accept a 10% penalty year after year in order to safeguard a little known, little understood part of the supply chain against an event that may or may not happen decades from now.
I agree with your conclusion, but I want to push back on the assertion that COVID19 was a "black swan". Pandemics (especially pandemics such as this one) are not black swans. Numerous experts saw predicted them. There were examples of similar events in the recent past (for example, SARS, MERS, H5N1 influenza, etc).
The reason markets are bad at dealing with pandemic preparation is the same reason that markets are bad at dealing with pollution. It's a collective action problem. The benefit of pandemic preparation is spread across society in a diffuse manner, whereas the costs are borne by the individual manufacturers and distributors who take on the increased transaction costs of dealing with three or four suppliers, when their competitors get away with only having one or two.
It's analogous to dumping untreated sewage in a river. Even if the executives at a want to install scrubbers, as long as it has a competitor who can manufacture goods or provide services more cheaply by dumping untreated sewage, the company cannot do so, because the costs incurred will put it at a competitive disadvantage, and it will lose business to its competitor. In the same way, even if executives understand that having a supply chain dependent on a few key suppliers is a potential liability, they can't diversify as long as those suppliers are the lowest cost option, and moving away would result in them providing the same goods and services at a higher cost than their competition.
Black swans aren't necessarily unpredicted. In fact they are usually predicted by a few people, but the predictions run so counter to the interests of established set of systems and models, that they are ignored.
In the book, Taleb actually spins a story about an individual who spends his entire life predicting and preparing for an invasion by barbarians, but is ignored, and upon his deathbed, the invasion happens.
People are constantly making predictions, many of which are very implausible, but it's never clear when one of those will turn into a black swan.
The pandemics you listed were different from this one in that they were not nearly as transmissible, even though some were deadlier on an individual level. A lot of people got used to thinking: "that kind of stuff only happens in those kind of countries, not here".
An earthquake in Kansas, on the other hand, would be a black swan. Kansas is not in what we currently understand to be a seismically active region, and thus I don't think it's reasonable to expect Kansas to have the same level of earthquake preparation as California (and vice versa for tornadoes).
In this instance, I think the pandemic was a reasonable thing to anticipate (even if no one could have predicted the actual timing or cause). There were airborne viruses which had made the jump to humans from a wild reservoir in the past. While previous examples were more deadly and less transmissible, the current outbreak was not, as I understand it, far outside the confidence intervals that epidemiologists predicted.
An example of a black swan in this instance would have been an organism that was as contagious as SARS-NCOV-2, but as deadly as Ebola. That would have broken many of our models (which hold that transmissibility is inversely correlated with deadliness). It would have caused us to significantly reconsider our models of viral evolution and disease mechanisms. In contrast, the current outbreak hasn't really caused anyone to reconsider their models of epidemiology. It's played out largely as many epidemiologists warned.
For that reason, I don't think the current outbreak is a black swan, and I think that many of the people calling it a black swan are doing so as an excuse to dodge responsibility for failing to prepare. It's as if I failed to secure my shelves in California, and then when an earthquake hit, and all my crockery spilled to the floor, I claimed that it was a "black swan", because no one could have predicted the specific timing of this earthquake.
One of most catastrophic earthquakes in recorded American history took place in 1811 in a place called New Madrid, Missouri, not far from Kansas. I'd predict that it's going to happen there again.
If it does, I'd still call it a black swan, since the systemic incentives to not prepare for such an earthquake in that area are probably optimized for the short-term.
In vast swaths of both the consumer and industrial economy, the supply chain bean counters have tolerated no argument for choosing anyone besides the low cost supplier.
Cost optimizations were the only rewarded metrics.
A extreme example I have heard of (could of course be false) is that some fish from the north parts of Norway get sent to be processed and packaged in china in order to be imported back at the same place where it was once fished.
If we want more redundancy by encouraging more spread out production there would need to be something to balance the desire to just move production where labour is cheapest.
It's a classic collective action problem. Diversification offers a diffuse benefit to everyone, but the costs are borne by the individual firms that put in the effort to train workers, document tacit knowledge, refactor supply chains, etc. As a result, without a central coordinating authority, firms will not diversify, because to do so would be to move away from the Nash equilibrium that incentivizes them to use the cheapest/fastest/most specialized supplier at the cost of diversification.
I agree it's a good idea but we should be clear that we are talking about making things more global and more interdependent.
We should also avoid the impression that everyone depends entirely on China -- a lot of big companies already have global supply chains with some redundancy.
In any case, global supply chains can't withstand a global pandemic that is causing business to slow down in every major country in the world.
What we're seeing is conflicting priorities.
After things normalize, we'll probably go back to just-in-time, full capacity production.
But there is a real and separate issue to debate w.r.t. globalization, and it has to do with international politics, and how safe it is to put one's well-being in the hands of a rival. Redundancy and efficiency have nothing to do with this argument.
His has not been a popular narrative among the Cambridge intelligentsia, who skew pro-corporate and anti-producer.
[1] (2010) "Innovation Killers: How Financial Tools Destroy Your Capacity to do New Things"
[2] (2012) "Producing Prosperity: Why America Needs a Manufacturing Renaissance"
Unless you have vast amount of clients and money there are almost no incentives for you to build from ground up your own supply chain. Mid size businesses, when very successful, manage to break away from a 3rd party factory and build their own. That's a massive win. Most of the raw materials will come from downstream providers and the task to get either redundancy or break away from them is going to cost you a lot of money and business margins.
Redundancy is in direct opposition to efficiency. You're always going to move faster and do it cheaper building a singleton, in the non-digital world where there are real costs to duplication.
In driving towards efficiency, redundancy presents no immediate benefit, introduces measurable costs, and so is actively selected against at every stage.
I'm not saying this should be the case. The drawbacks on long time scales are... well, exactly what we're seeing right now. But it does explain the current situation.
It's not a binary 'either redundancy or efficiency'.
Also, brands with a reputation for reliability can and do charge more.
The reality is that you have wave after wave of consolidation. Often the savings if any are nebulous. Most of the issues with manufacturing in western countries and the US in particular are accounting and tax based.