Supply chains: Density increases distance which favors specialization and concentration spawning vulnerabilities
Three recent reports offer related insights.
Building America’s Future: Transportation Infrastructure Report 2012 (4.8 mgb) tells us,
We have let more than a half-century go by without devising a strategic plan on a national scale to update our freight and passenger transport systems. The size of our federal investment in transportation infrastructure as a share of GDP has been dwindling for decades, and most federal funds are dispersed to projects without imposing accountability and performance measures. This lack of vision, lack of funding, and lack of accountability has left every mode of transportation in the United States—highways and railroads, airports and sea ports—stuck in the last century and ill-equipped for the demands of a churning global economy.
Building Resilient Supply Chains (6.48 MB) tells us,
…concerns have remained about external threats to supply chains (such as natural disasters and demand shocks) and systemic vulnerabilities (such as oil dependence and information fragmentation). Additionally, growing concern around cyber risk, rising insurance and trade finance costs are leading supply chain experts to explore new mitigation options. Accenture research indicates that more than 80% of companies are now concerned about supply chain resilience.
A Gallup Survey finds:
One in four Mississippi residents report there was at least one time in the past 12 months when they did not have enough money to buy the food they or their families needed — more than in any other state in the first half of 2012. Residents in Alabama and Delaware are also among the most likely to struggle to afford food… In 2012, the worst drought since the 1950s has affected nearly 80% of agricultural land in the United States, which may drive up the cost of food in the months ahead. While Americans are no more likely to struggle to afford food thus far in 2012 than in the past, more residents may face problems as the drought-related crop damage results in a shortage of inputs in the food supply and begins to affect retail prices.
So… sources of supply for basic commodities — including water and food — are under stress. The infrastructure by which supplies are transported is aging and ill-maintained. The system through which needs/demands are expressed and fulfilled is increasingly vulnerable to disruption.
For at least 10,000 years humans have developed infrastructures to facilitate the meeting of supply with demand, source with need.
Especially in the last 200 years our infrastructures have allowed us to depend on supplies from greater and greater distances. Our supply lines – our lifelines – have gotten longer and longer. This has been crucial to our ability to supply increasingly dense population centers. Increasing population density is supported by our ability to facilitate supply over great distances.
This distancing of lifelines has also encouraged an increasing specialization and concentration of supply – mostly in search of comparative price advantage. So we see the concentration of pork production in Iowa and North Carolina, fruits and vegetables in California, dairy is increasingly concentrated in a few regions, mushrooms in Southeast Pennsylvania.
While this is at least a 150 year trend, it is important to recognize how the trend has accelerated and changed over the last half-century. As recently as the 1950s New Jersey truck farms were still the principal source of fresh fruits and vegetables for the New York metro market.
As demand density accelerated in the last half of the 20th Century, we experienced an increased distancing of lifelines. This distancing also encourages a tendency toward specialization, concentration, and reduced diversity of sources. Specialization, concentration, and reduced diversity are common characteristics of fragile systems.
In the last thirty years, the distancing of many supply chains has become so extreme that the ability to reasonably balance supply and demand is only possible as a result of sophisticated methods of tracking and anticipating demand well-in-advance.
For most of human history supply has been pushed by suppliers toward where they hoped there was demand. Today, especially for food, pharma, and most consumables supply is pulled by digital demand signals. If the demand signals stop , so does supply. This has crucial implications for disaster preparedness, response, and recovery.
It is worth recognizing that what seems “normal” today would have seemed magical as recently as thirty years ago. We are enjoying supply chain benefits unprecedented in human history. Are there also unprecedented risks?