Sunday, October 17, 2021

The Next New Thing: Resilient Supply Chains

Lots of news stories talk about problems with "supply chains". Various events have disrupted supply chains in multiple industries. (Automobile manufacturers cannot get all the computer chips they need for their cars, limiting sales.)

It seems to me that the next phase is to increase the resiliency of supply chains. Manufacturers will want to ensure reliability of deliveries, to ensure the reliability of their sales.

But resiliency in a supply chain is not easy.

Let's take the example of laptop PCs. PCs have a number of components, and a vendor buys these components and assembles them into laptops. Those components include memory, disk drives (perhaps SSDs), keyboards, power adapters, and displays (and many more components, but you get the idea).

A naive approach to a resilient supply chain would be to find two (or more) sources for all of the components. Two makers of memory, two makers of disk drives, two makers of keyboards, etc. With multiple suppliers, you feel greater confidence in your supply. A disruption to one supplier might no affect the second, so if supplier A cannot meet your needs, you can call on supplier B.

This assumes that supplier A and supplier B have independent sources for their products. But that may not be true. If they supply you with disk drives, for example, they must buy various pieces to make a single drive: platters, read/write heads, arms to move the heads, actuator motors, etc. Suppose both suppliers get their disk platters from the same source? A disruption to that source would affect both suppliers, and (indirectly) the laptop vendor.

Resiliency -- true resiliency -- requires multiple sources all the way down the chain. Managing the multiple sources (and ensuring that the different sources are unique) requires information that is not generally available in today's contracts. Obtaining that information may not be easy, as suppliers may be unwilling to reveal their sources.

Convincing suppliers to coordinate their activities may require time and effort (and may run afoul of anti-trust and anti-competition laws) and may increase the cost of supplies. A large purchase with a single vendor may see a pricing discount based on volume; a purchase split across multiple suppliers may see lower discounts, and some suppliers may want higher prices. 

I expect manufacturers will work on resiliency, but say little about it. Resiliency doesn't play well in advertisements, as "green" or environmentally safe processes do, or fair treatment for workers.

In the end, resiliency is a trade-off of cost and effort for reliability.

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