Despite the date of posting, this post isn’t a joke and is meant to provoke some thoughts on efficiency and flexibility.

As a result of COVID-19 pandemic we saw the mad rush for toilet papers and other essentials that were getting swept off super-market shelves. Not just toilet papers, even face-masks and ventilators were in short supply at a time when they were most needed. Many consumer and semiconductor companies lowered their guidance due to disruptions in their supply chain. How did we get into a situation where so many industries - from toilet papers to iPhones were getting affected?

The world over the many years got more globalized. American or Canadian products were not made in the US or Canada. They were made in places where it was cheaper and faster to make. Even trash is sent to other countries in order to be recycled in a cost-effective manner. In short, global supply chain over the years shaped its goal into one that is more cost efficient rather than being flexible. This is not the first time companies are facing shocks. Not long ago, floods in Japan resulted in supply chain issues for automotive companies.

Is this design for efficiency a problem? It definitely looks like, given what many countries went through as the COVID-19 pandemic stuck. Many companies were not able to reliably source their material and keep their assembly lines busy, as they were over-invested in the most (cost) efficient supply chains like in China. If instead the supply chains were designed for flexibility, the average marginal cost of a product “might be” (and just might be) a little higher but geography specific events would not throw the entire system out of gear. There is an emphasis on the uncertainity of the cost implications as it is not entirely clear at this point. For example, one could argue that, if the semiconductor industry had sourced from several geographies like China, India, Africa, South America, etc., it is very likely that the infrastructure for sustaining such supply chains would have developed in many such countries creating a healthy competition, thereby reducing the cost. And this applies to several industries, not just semiconductors.

Have the corporates learnt a lesson now?. There was a similar talk after supply chain disruptions in Japan, but nothing materialized in the long run. Would this time be different? One has to wait and watch.