“If we are simply optimizing bad processes, efficiency as an end-goal means very little.” So says Shawn Beilfuss at Asia Logistics Wrap, in the context of a discussion of what he sees as the beneficial role of “corporate social responsibility” in supply chain management. Rest assured, I’m not quoting him simply because he also mentioned How the World Works in his post. I just like the basic thrust of that sentence. It’s given me a new mantra to chant before going to sleep: Don’t Optimize Bad Processes!
Those words were still echoing in my head while I read an intriguing Economist article exploring the problems that arise when corporations have made their supply chains too efficient. The underlying argument — that you can be too lean and too mean — was the central thesis of last year’s dour look at globalization by Barry Lynn, “End of the Line: The Rise and Coming Fall of the Global Corporation.” Lynn made a forceful case that the relentless search for supply chain efficiencies via offshoring and outsourcing by companies such as Dell and Cisco and Wal-Mart have resulted in fragile, brittle, over-extended production lines that are certain to crumble in the face of unexpected disaster. Lynn’s favorite example is an earthquake in Taiwan that played havoc with high tech assembly lines all over the world in 1999.
I thought when I reviewed “End of the Line” that Lynn’s apocalyptic take was a little over-wrought. At first glance, the Economist’s retelling of an incident that it dubs a “classic” in supply chain studies seemed a bit more realistic. A fire in a New Mexico semiconductor plant disrupted supplies of chips that were critical to cellphones manufactured by both Nokia and Ericsson. Nokia responded immediately, locked up alternate supply lines and weathered the disruption handily. Ericsson took weeks to realize the extent of the problem, and by the time it did, was unable to find new sources of supply — because Nokia had beaten it to the punch. Ericsson lost a lot of money and now doesn’t make its own cellphones any more. Moral of the story: some corporations are better at managing risk and disruption than others, and those will be the ones that ultimately flourish in the ever-more competitive global economy.
The trick, for a corporation, is balancing on that fine line between the most bare-bones just-in-time, single-sourced production, and the necessary redundancy and back up strategies for handling a “disruption.” Too much redundancy, and you are wasting resources necessary to compete in the marketplace. Too little, and you’re toast when a hurricane wipes out a key cog in your machine.
But what happens to that balancing act if the likelihood of major disruptions begin to rise? What if climate change results, as some insurance companies are beginning to predict, in a surge of financially disastrous weather events? What if tight energy supplies lead to unpredictable price spikes, or even worse, resource wars between power-hungry states? What if terrorist acts go on the upswing? The closer you look, the more fragile the entire world appears — the more trapped humanity seems to be in an interconnected lacework of badly optimized processes. Isn’t finding the balance between too much risk and too much prudence going to become more difficult?
Humans have been beating their heads against that particular rock ever since climbing down from the trees and starting to wander the savannah. But suppose the apocalyptic warnings of writers like Barry Lynn are correct — if global production lines are being stretched tighter and tighter even as the possibility of sharp disruptions grow greater and greater, well, we’ll be in for some interesting times.