Homeland Security Watch

News and analysis of critical issues in homeland security

January 24, 2013

Supply chains: Density increases distance which favors specialization and concentration spawning vulnerabilities

Filed under: Infrastructure Protection,Private Sector,Risk Assessment,Strategy — by Philip J. Palin on January 24, 2013

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.

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?

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7 Comments »

Comment by William R. Cumming

January 24, 2013 @ 1:30 am

Okay so is it less investment equals less resilience or is it nonfeasance, misfeasance, or malfeasance whether the investment stream in supply chain resilience like the earnings of the banksters been diverted to those who manage it as opposed to the end product, e.g. a service or good that helps maintain and increase resilience?

Did the $17-20B invested in the Big Dig in Boston help supply chain resilience? Or did the average $10-20B in annual federal crop insurance payments help supply chain resilience? Or did property insurance repetitive payouts in coastal areas help supply chain resilience?

And exactly which Congressional committees are involved in supply chain resilience?

What investment has been made in Intermodal Transportation links? Shipping containers improved resilience and lowered costs. Widening of the Panama Canal will lower costs of goods shipped.

And conversion of valuable crop land to other uses impacts resilience how?

And how does the growth of local government to over 90,000 entities with more each day help resilience?

How does federal recognition of Indian Tribes help resilience? Now over 500? How does the Casino industry help supply chain resilience? How do state lotteries help resilience?

How does immigration help supply chain resilience?

How does government organization help supply chain resilience?

Who studies logistics and supply chains and develops studies of their resilience?

Who profits from lack of supply chain resilience? Who benefits in other ways? Who benefits from improvements? Which SIC are most dependent on supply chains?

A fool of course can ask more questions than a wise man can answer!

FOOD, ENERGY, WATER ALL INTERRELATED SUPPLY CHAINS OF COURSE!

FEDEX AND UPS part of supply chain!

In 1940 over 100 vegetable canning facilities in the Northern Neck and Middle Pennisula of Virgina now none. Supply chain resilience?

Which governors worry about supply chain resilience? Which mayors? Which Executive Branch departments and agencies? Which regulators? Which insurers? Which investors?

YUP all a worry IMO!

Comment by Philip J. Palin

January 24, 2013 @ 7:46 am

Bill, An oblique response. Over the last two centuries the human species has transformed its context in totally unprecedented ways. Over the last fifty-to-sixty years we have accelerated this process.

Along the way we have created new aspects of complexity and self-organization. This has altered our cultural topography in ways we still do not fully understand.

We usually prefer reductionist and linear solutions that are now often ill-suited for where we find ourselves. Too often what we intend as a help ends up hurting, sooner or later.

Before we can usefully specify effective tactical solutions, I perceive we need to acknowledge how dramatically our context has shifted and reach some shared sense of how this new reality truly operates… for better or worse.

Comment by HGRATTAN

January 24, 2013 @ 8:18 am

IMHO, Global supply chains are the ultimate representation of Adam’s Smith’s invisible hand driving markets. No matter governments, companies, or individuals, the fittest purveyor of goods can manufacture and acquire globally and sell globally.

IMHO, near-future attempts to control (regulate) global markets will be mostly nominal. Capitalist mostly recognize the inherent fragility of business enterprise and relish in the idea that the fittest will succeed.

Reductionist attempts to build global market resiliency must consider that the whole market is inherently resilient. That is not to say that regions, states, and local government should not build regional, state, and local supply resiliency. The recent events of Hurricane Sandy demonstrate that we should.

Comment by Willioam R. Cumming

January 24, 2013 @ 8:24 am

Of course international illegal drug supply chains seem highly resilient.

Pingback by Today’s Digest 24. January 2013 » Continuity Management News

January 24, 2013 @ 11:01 am

[...] Supply chains: Density increases distance which favors specialization and concentration spawning vul… 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…. [...]

Comment by Philip J. Palin

January 25, 2013 @ 7:02 am

Mr. Grattan: Can we conceive of ways to effectively engage complex adaptive systems that do not involve control (regulation)? Is our economy — society — really just a Darwinian process of randomness and survival of the fittest?

Comment by HGRATTAN

January 25, 2013 @ 6:49 pm

As has been extolled on this blog, cynefin methodologies “might” be a means to “engage: complex adaptive systems.

However, I am not sure who “we” is or if “engagement” might be what Nassim Taleb (Black Swans) refers to as naive interventionism. Taleb argues that acknowledging randomness and black swans and our fragility (Antifragile) will increase resiliency. The National Intelligence Council’ Global 2030 suggest that the fittest societies and economies will survive best.

While I am skeptic as to effective interventionism, I am open to cynefin and other means to engage the world as it is.

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