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"When the trucks stop"

A good post from Stoller on the supply chain:

This level of concentration of the production of key components in a globalized economy is a new phenomenon. Lynn’s work points to the highly dangerous side of globalization, the flip side of a hyper-efficient global supply chain. When one link in that chain is broken, there is no fallback.

The end game of finance capitalism is eerily similar to the gigantism created by the Soviet "planned economy," where there would be a single humongous factory to manufacture cigarette filters, say, out in the steppes of Nicotinistan, and if it failed, no cigarettes. (Of course, the free market is supposed to be the antithesis of central planning, but what we laughingly call the free market just allocated a ton of capital to MacMansions with styrofoam pediments out in the burbs, now being demolished for cents on the dollar. So the difference between the banksters and the Politburo would be?) Anyhow:

Today, the problem manifests as shortages of videotape or auto parts, but the global supply chain is so tangled and fragile that next time it could be electronics, weaponry, or even food or medicine. ....

According to Lynn’s groundbreaking book End of the Line, the essential problem is a basic shift in the way that American multinationals operate. In the 1980s, the competitive manufacturing threat from Japan led most large companies to eliminate waste in their production facilities. As a result, they stopped keeping spare parts on hand. Eventually, companies began outsourcing production itself, as profits came increasingly from extractive monopolistic power over an economic system. Walmart is an important example; its profits come from the power it can exert on its suppliers, telling them what to make and how to make it, while the company itself functions as a giant autocratic marketplace and trading operation. Increasingly, this is the model of success in our global economy. Boeing, Cisco, Apple—all of them rely on their power over an ecosystem of production facilities halfway around the world. They have become rent extractive profit-machines, which is a relatively new phenomenon.

American infrastructure is not just about public goods, it’s about how the corporations that enforce, inform and organize economic activity are themselves organized. Are they doing productive research? Are they spreading knowledge and know-how to people who will use it responsibly? Are they creating prosperity or extracting wealth using raw power? And most importantly, are they contributing to the robustness of our society, such that we can survive and thrive in the normal course of emergencies?

The answer to all of these questions right now is “no.” And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage. The re-engineering of our global supply chain needs to happen—and it will happen, either through good leadership or through collapse.

Out here at the margins, where Interstate 95 turns into a two-lane road, our short hand for supply chain collapse is "When the trucks stop." We're an older state, and poor. Big Oil, Big Food, Big Money, Big Media -- none of them do a lot of extraction here. Pickings for the corrupt are slim. Would Versailles hesitate for a minute to write us off? Of course not. So we're learning to grow our own food. That should help in a food crisis. About a pandemic, I'm not sure what to do, since we're actually quite cosmopolitan, hence have many potential vectors for infection. Readers?

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votermom's picture
Submitted by votermom on

Maximizing efficiency aka eliminating slack means always going at 100%.
This means your business is literally running at full capacity so you have no flexibility. If you have no flexibility you cannot deal with the unexpected.

What happens if a component breaks (which will happen more because of the stress of running at full throttle) - you have no capacity on standby that can be put to use while that component is repaired -- no, you are forced to at least partially shut down for repairs.
What happens if a new opportunity (new client frex) appears? You are already at 100% capacity so you will have to let your competitor grab that client.

Maximum efficiency is one of those stupid buzzwords that mba types throw around but that real business owners and factory supervisors know is BS.

okanogen's picture
Submitted by okanogen on

The engine was lost, for lack of an engine.....

The Mitsubishi exec says that Mitsubishi's plants are located in the south of the country and weren't directly affected by the event. Even the company's tier one suppliers were largely unaffected — but some of those suppliers have been unable to contact or liaise with tier two or three suppliers based in the north.

"We heard one horror story of one particular plant... the tsunami hit just at shift changeover, so it just wiped out everyone," Stevenson said.

"Renesas is the classic [example], with the ECU chips for diesels. 70 per cent of the Japanese industry... [was] stuffed. 'That means no diesel cars for six months' was the reaction..."

Since the output from Renesas is critical to vehicle production in Japan, it has been receiving considerable help to get back on its feet. Reports that major players in the automotive industry have sent 1000 staff to northern Japan to rebuild Renesas are not correct, says Stevenson... it's more like 2000.

"This is a huge industry up there; there's 2000 people from the whole automotive industry at present that I gather have been moved into Renesas, to try to get them cranked up..."


It's still too early to look beyond the immediate implications, but — as for many in the industry — Stevenson believes there must be some soul-searching to avoid single-point sensitivity playing such a devastating role in future.

"It's thrown into question the whole [issue] of supply chain logistics..." he said. Having one plant supply one type of part for the whole world provides "economies of scale", but "there's a huge risk associated with that."

propertius's picture
Submitted by propertius on

between the banksters and the Politburo would be?

Better suits, silly. Nicer shoes, too.

Submitted by dirac on

Yeah, whenever I go to Corporatania for a hamburger or a bad latte it isn't for uniqueness and novelty but for consistency, uniformity.

Jessica Yogini's picture
Submitted by Jessica Yogini on

One is the level of one corporation. The other is the level of the sector as a whole.
After this tsunami, the Japanese automobile manufacturers are aware that they need to put some flexibility back into their individual supply chains. One example is that Toyota is trying to get all the manufacturers to agree to standardize certain electronics. It seems to be the ones they don't actually compete on, such as airbag controllers. If they were using the same low-level components, then if one plant was offline for a while, they could purchase from someone else.
Ironically, it is conceivable that the end result could be more resilience for each company, but less resilience for the Japanese car industry as a whole. If they standardize the lowest-level components, that would make it easier for all the production to concentrate in a smaller number of component makers.

I think that the functions within the elite that used to keep an eye on the overall picture, that actually had some kind of a plan, those functions have been greatly weakened. So there is no one even trying to keep the system as a whole healthy. (And here, by "healthy", I mean "able to function the way the elites want". I don't mean "really healthy".)
So for example, I do not believe that the financial sector has some grand plan to reduce the American standard of living or anything else. They are simply trying to make a quick buck. When I read the financial blogs (and I came here via Naked Capitalism), the folks who seem to know the financial sector folks personally (or __are_ financial sector folks) are pretty consistent in their description. That everyone just wants to make their own personal fortune, then the hell out. Quickly.
In the short-term, it may not matter whether they are deliberately trying to screw us or they are just stealing everything they can get their hands on and we happen to be in their way. But in terms of actually moving forward, this seems like too big a difference not to be important for our strategy.

Jessica Yogini's picture
Submitted by Jessica Yogini on

I can not even begin to explain this in proper detail, but I just have this sense that as long as we think that there is a They there for us to oppose (rather than a very nasty swarm of Me-Me-Me's), we remain within the worldview that Me-Me-Me thrives on.
To put it another way, as long as opposition to Them and defense are at the center of our activity, we are still playing the game of the current system. When we know what we want, opposition and defense may still take up most energy, but they will flow from a core that is new, that is Other, that not the current game.