‘Most people think the supply chain is just part of the global economy. That’s not entirely true. The supply chain is the global economy. There is not a single good or service of any kind offered to you that does not arrive through a supply chain. Not one.’
I wrote this in a previous edition of The Daily Reckoning Australia. It’s a big claim, but it’s true.
The term ‘supply chain’ is just a name that we give to a nexus of logistics, inputs, processes, transportation, packaging, distribution, marketing, customer relations, vendor relations, and human capital, which together support the supply and demand of every physical, digital, intellectual, or artistic artefact on the planet and in space. The supply chain is everywhere.
One way to understand the complexity and pervasiveness of supply chain dynamics is to consider yourself as a one-person supply chain, as suggested by MIT scholar Yossi Sheffi in his 2005 book The Resilient Enterprise. Sheffi’s thought experiment goes something like this…
You wake up in the morning to the sound of an alarm clock. It may have been purchased at Walmart and made in China. You roll out of bed and make some coffee (from Brazil or Costa Rica). You prepare a nice breakfast of eggs (trucked in from a local farm), toast (from a local bakery), and orange juice (moved in refrigerated rail cars from Florida).
Once breakfast is done, you check your email and news (on a computer made in China), then hop in your car (made in Tennessee by a Japanese company) and do some shopping. You buy some clothes (made in Thailand and Vietnam), pick up your new glasses at the optometrist (with German lenses and Italian frames), and fill up your car with gas on the way home (with gasoline refined in Philadelphia from oil pumped in Nigeria, shipped to the refinery by a tanker, and delivered by truck to your local gas station). And so on…
You get the idea. You’re surrounded by physical goods and services sourced from all over the world and delivered by truck, rail, or vessel to regional distribution and processing centres, then delivered to your local stores. You complete what’s called ‘the last mile’ delivery in the supply chain by shopping in your own car, or you can have goods delivered to your door through e-commerce vendors like Amazon. You’re at the centre of your own human supply chain.
But it gets even more complex
You get an even better idea of the complexity involved when you consider what’s called the ‘extended supply chain’. This analysis involves taking all of the suppliers in your personal supply chain and thinking about the separate supply chains of those suppliers.
The alarm clock made in China has parts from vendors all over the world (semiconductors, copper cords, plastic mouldings, LED displays, etc.). Your morning coffee is made in a percolator or drip-style coffee maker with stainless steel, tempered glass, semiconductors, and other components from vendors in Germany, Taiwan, and Mexico. The coffee beans were roasted abroad, packaged, and delivered by container cargo on vessels owned and operated by Maersk (Denmark), COSCO (China), or Hapag-Lloyd (Germany).
The vessels themselves were likely built in Korea. The automobile you take shopping may have been made in Tennessee, but it includes semiconductors from Taiwan Semiconductor Manufacturing. The clothes you purchased were made from cotton grown in Egypt and include plastic buttons fabricated in Malaysia.
Of course, we can continue this analysis indefinitely. The plastic resins used in the Malaysian button factory may have come from a chemical firm in Germany. That’s the point. The supply chain is endless because every output has one or more inputs, which also have their own inputs, all the way back to basic industries such as mining and steel foundries. Of course, those industries have their own inputs of machinery and electricity. Making it all work is human capital, from technical expertise to manual labour. The supply chain never ends.
Previously, I’ve looked at specific examples and anecdotes about how the global supply chain is breaking down. We looked at container cargo vessel bottlenecks at major ports, trucker shortages for moving those containers from the ports, and crowded distribution centres that couldn’t handle more deliveries because they couldn’t get the existing stock out the door.
The irony was that these overcrowded ports, trucking lines, and warehouses were offset by bare shelves in bricks-and-mortar stores and limited selection in online purchases. The same forces that jammed up the delivery lanes were also starving the retailers of stock.
As I’ve described before:
‘Everyone is blaming everyone else. Ships that can’t unload at ports blame the truckers who are supposed to remove the containers already ashore. Truckers blame state regulators that make them wait in line for days to pick up containers, only to tell them to come back tomorrow. Retailers blame distributors. Customers blame retailers. The problem is they’re all right.’
Strategist, The Daily Reckoning Australia
This content was originally published by Jim Rickards’ Strategic Intelligence Australia, a financial advisory newsletter designed to help you protect your wealth and potentially profit from unseen world events. Learn more here.