Efficiency vs. Resilience: Global Supply Chain Collapse – Part 1: The Problem

If you have been trying to purchase anything lately — from a car or laptop to holiday gifts, or you’ve been watching the news — you’ll be aware of the disruptions in the global supply chain. This is an example of the inverse relationship between efficiency and resilience in systems. This week, we’re going to look at this issue in three dimensions: biological, historical, and futuristic. But today, we’ll start by taking a step back and picking apart the supply-chain collapse in detail.

Ships off the California coast (source).

One Problem: “Just In Time” Shipping Model

In the 1930s and ’40s, cash- and resource-strapped Toyota developed a manufacturing system now referred to as the “lean” or “Just in Time” (JIT) manufacturing model. Instead of a car factory, for example, having a warehouse full of parts to supply its production line for a week or a month at a time, it depends on having it’s components shipped to the factory on an as-needed basis, that is, just as they are needed. It also produces less waste, as superfluous materials are not sitting around, gathering dust.

The benefit to this is that a company does not need to pay for supplies weeks in advance and less storage space is required for inventory. It does, however, require a regular supply chain and consistency in its production.

This model has become standard in many industries. My neighbor supplies drywall to builders, and the contracts they signed six months ago can now eat their business alive because the agreed-upon price has risen 25 percent in the last year, eliminating their margin, and then some. This is because they were selling drywall they would receive (at a future, unknown price), not drywall they had bought and held in a warehouse (at a known price). Grocery and department store chains no longer have vast warehouses, where weeks worth of goods are stored. Instead they have distribution centers, where manufacturers’ goods are quickly divided up and sent to retail shops.

A Target distribution center in Maryland (source).

Perhaps you remember the COVID-19 pandemic. The first big supply chain issue was the lack of personal protective equipment (PPE), which depended on JIT manufacturing. If governments and hospital systems had adequate stockpiles of PPE, the supply chain could have ramped up before the equipment ran out. Also during the pandemic, a container ship blocked the Suez Canal, causing a week of delays in the global conveyor belt of goods, further illustrating the interconnectedness of manufacturing, supply, and transportation.

The blocked Suez Canal and hundreds of waiting ships (source).

An event from Toyota’s history was a small-scale example of what we’re seeing as Chinese and other factory-rich countries have shut down production to prevent the spread of COVID-19 and to absorb supply-chain hiccups:

In February 1997, . . . a fire at Japanese-owned automotive parts supplier Aisin decimated its capacity to produce P-valves for Toyota’s vehicles. Because Aisin is the sole supplier of this part, its weeks-long shutdown caused Toyota to halt production for several days. This caused a ripple effect, where other Toyota parts suppliers likewise had to temporarily shut down because the automaker had no need for their parts during that time period. Consequently, this fire cost Toyota 160 billion yen in revenue.

“Just in Time (JIT),” Investopedia

The above-going discussion is a brief look at a big problem, which has been covered in more depth by the New York Times, the Guardian, and other outlets (while Forbes thinks this will reinvigorate the JIT model). What these discussions lack, is a look at the broader picture, namely that long-distance supply chains are unsustainable as fossil fuels become less viable over time.

Our basic premise here at the Low Technology Institute is that fossil fuels will no longer be used at some point in our future — we should use our comfortable time now to convert our way of life to one that doesn’t depend on these fuels. As we’ll discus in an upcoming post, no preindustrial (and pre-fossil-fuel-using) complex society has successfully depended on the long-distance transport of staple goods. The JIT model depends completely on heavy fuel usage to get things moved around the globe in a reliable time frame. If it won’t get there in time with a ship, then we think little of putting asparagus from South America onto a plane to get it to US markets in January. JIT dependent on a smooth transportation network, but that is only possible with fossil fuels. Although some argue that by the time these fuels are obsolete, we’ll have viable replacements. An alternative would be to reorganize our economy to depend on local labor and resources, which obviates the need for fossil fuels now and dependence on the emergence of new, yet-to-exist technology in the future.

Resilience vs. Efficiency

We’ve all seen the term “resilience” popping up more often lately (it is now used in print 11.5 times more than in 1980). Even supply-chain management studies use the term to refer to “the capacity of a supply chain to persist, adapt, or transform in the face of change” (cited here). But wherever it is used, it goes back to the idea of any system — ecological, social, mechanical, financial, etc. — to respond to and recover from a change in conditions. Generally this is done through resistance, adaptation, or some combination of the two. These strategies may keep a system functioning, but they are not per se efficient.

Resistance is used to make a system resilient by maintaining function in spite of adversity. Continuing to make mortgage payments out of your savings after losing a job is an example of financial resilience. A house that doesn’t collapse under an an usually heavy snowfall demonstrates mechanical resilience. The Amish society has resisted modernization. And the prevalence of grizzly encounters in the US West, speaks to the persistence of an apex predator despite human incursion.

Adaptation aids resilience by changing a system to match the current state of affairs. To continue our above examples, finding a new job to pay the mortgage or selling the house would be financial adaptation. Retrofitting a house to increase the snow load rating adapts a current structure to a snowier reality. The use of electricity in business ventures have generated new revenue for Amish communities. And grizzlies’ interest in dumpsters is an understandable adaptation in the places where this food source and their ranges overlap. Again, systems can use both resistance and adaptation at the same time, increasing their overall resilience.

The reason that we all aren’t adopting resilient strategies is that they are inefficient in the short term. To pay your mortgage by dipping into savings means you had to put aside resources instead of using them earlier. Overbuilding a house “just in case” costs more at the outset. With the Amish relying on animal power instead of fossil fuel motors, they accomplish less work in the same amount of time. And it would be better for grizzlies to avoid people and built-up places, but a bear gotta eat.

The Alternative: Just in Case System Model

Instead of relying on just-in-time shipping of parts, goods, and supplies, the “Just in Case” (JIC) model was prevalent before high-speed transport was available. It isn’t as dynamic or exciting: warehouses of goods ready for use, a factory with supplies for a month on hand, and a household with food stores and savings in the bank (or under the mattress). This is less efficient, to be sure, during times of smoothly functioning transportation and production. But during any disruption, from natural disasters to sociopolitical upheaval, those with resources on hand can continue to function for a time, while others must put their lives, production, and business on hold. Unfortunately, resilient complex supply chain problems can be reduced to the fable of the ant and the grasshopper.

Fable of the Ant and the Grasshopper (Milo Winter).

In the next posts, we’ll explore resilience in natural systems, human history, and our future. Subscribe to the blog and stay tuned.

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