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A different kind of supply-side economics

Japan Toyota Dealership
We're often one disaster away from a major break in the way we do business. Photo: eandt.theiet.org.

In the wake of the devastating Japanese earthquake and tsunami, an instructive story is unfolding about the manifold vulnerabilities of the modern industrial world.

Robin Young of the radio show "Here and Now" reported yesterday on the too-often overlooked phenomenon of industrial supply lines. Her guest, Jeffrey Karrenbauer, a supply-chain expert with Insight Inc., said that supply line disruptions are inevitable after large-scale disasters and political unrest.

In post-tsunami Japan what that's meant is a massive production slowdown of car and electronics parts. In turn, distribution and delivery are hamstrung. Manufacturers of other products relying on parts from Japan suffer their own production lags. If able, they'll source parts elsewhere. But that's not always an option, compounding delays across the supply chain.

In a world of just-in-time inventory, retailers' shelves quickly empty and you, dear consumer, can't get your iPhone or replacement Toyota radiator as quickly, messing with your Twitter addiction or your commute.

How supply chains are like Transition

Karrenbauer advises companies to up awareness of their entire supply chain in order to build resilience into their systems. Like Transition, supply chain analysts advise making assessments of resources and imagining scenarios that might challenge or disrupt the system.

You are trying to identify potential risk, places where your supply chain is most vulnerable, and then preferably take mitigating steps before it occurs, as opposed to trying to respond after the event.

But just as Transition faces resistance from those who see no need to plan for tomorrow, Karrenbauer says supply analysts meet opposition when businesses prioritize immediate profit over the investments that gird against future losses. The reality, says Karrenbauer, is that the investment usually saves a firm money.

The bigger they are, the harder they fall

The problem, says Karrenbauer, is that too few people connect the dots on just how tied into the supply chain we all are. Whether it's government ignoring advice on Katrina-level hurricanes, businesses getting supplies from thousands of miles away, or consumers never considering that one day that Blackberry might not be on the shelf, we're culturally disconnected from the origins and sources of our goods. Sure, we're dimly aware, but that's the extent of it.

Without increasing consciousness of our interconnectedness on many levels, we amplify our vulnerabilities across the board. That makes us ripe for a fall in situations like Katrina or the tsunami-Fukushima double whammy. As Karrenbauer says

That's inviting disaster. And it's inexcusable. Absolutely inexcusable to put a company — perhaps the entire enterprise — at risk like that.

The aim of Transition is to cultivate awareness and revive local interconnectedness, building social, cultural and practical resilience into communities. The same is true for business in supply-chain analysis.

Watch and learn

Japan's massive disaster is not restricted to its shores. Its implications reach across the globe. If that means we'll start paying more attention to what doesn't work in globalization, aided by level-headed business types like Karrenbauer, we should sit up and take note. And then we should adjust accordingly.

Karrenbauer advises that more students eye the field of operations as a career, choosing supply-chain programs. These jobs have less competition than ones in finance but are increasingly needed as risk assessment becomes more necessary.

Bringing it all back home

Japan's supply-chain disruptions might also mean opportunities to relocalize manufacturing in the US. Karrenbauer agrees.

We are already seeing companies pull back from some of their outsourcing strategies. And they were ill-considered in the first place. Certainly supply chain folks were not in back of this. It was kind of a blind rush, lemmings going over the cliff toward cheap labor rates. People are now waking up, somewhat after the fact and saying, "Boy, you know, a twelve thousand mile long supply chain is pretty expensive."

With peak oil officially here, that supply chain grows even more costly and riskier.

Here's where Transition may find an opportunity to increase its influence on the economic conversation. With a buy-in from business on the issue of vulnerabilities in long supply chains there's an entrée to discuss the real business benefits of relocalization.

And like parts for iPods or Toyotas coming from Japan right now, that kind of coalition of concerned business leaders and Transition advocates is in too short a supply.

--Lindsay Curren, Transition Voice

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