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Climate Risk IN DEFENSE OF REDUNDANCY: The Overconcentrated Modern Economy and the Dangers It Poses
By Evan Anderson Why Read: Global industry has consolidated over the past few decades, while modern technology has led to supply chains increasingly filled with needs met by just a few suppliers. At the same time, growing geopolitical and climate risk render improved resiliency in our systems far more important than it has ever been. This week, we cover some of the ways our shift toward a lack of redundancy is running into geopolitical and climate headwinds, and the opportunity in an alternate path. ________
Many supply chains are perfectly suited to the needs that the business had 20 years ago. - Jonathan Byrnes, MIT Center for Transportation and Logistics Amateurs talk about strategy. Professionals discuss logistics. - Omar Bradley
In early 2020, as the global pandemic began to spread across continents, it was clear that a series of shocks was about to take place. Those shocks, from the personal to the systemic, were myriad. One of the most notable economic effects, whose ripples are still being felt to this day, was in our supply chains. The pandemic exposed a system of production, trade, and business the world over that had become so delicately fine-tuned it could not handle minor disruption. This makes plenty of sense: the best way to reduce costs and increase efficiencies across global markets is to concentrate resources devoted to a task into streamlined, last-minute production and delivery mechanisms. We even have language in modern corporate life that specifically outlines these themes. From make-to-order to fine-tuned inventory to "eliminating redundancy," we are ever closer, it seems, to the economic holy grail: the person, company, or system with the best comparative advantage making only exactly what is needed at maximum efficiency, delivered right on time. Sounds pretty good, right? Except it's a fallacy. Nothing has ever been 100% predictable. What also happens when you fine-tune your systems of production down to an increasingly discrete set of small actions - actions that must happen in just the right way, without hiccups, for a given event to occur? You manufacture vulnerability. The pandemic shortages, from personal protective equipment (PPE) to toilet paper, are perfect examples of how this kind of vulnerability plays out. Chinese factories worked by political prisoners and subsidized by the government were the most efficient manufacturers of PPE at the lowest costs to meet demand, until demand changed. Panicked customers and opportunists buying up toilet paper completely changed the nature of that market (at least for a while). Suddenly, the fact that only a few US companies still made masks and gowns, or that demand for a simple consumer staple jumped 845% year over year, became a massive vulnerability. But we've had more recent examples of these types of phenomena, and they are only just getting started. The interlacing aspects of rising geopolitical and climate risk are now stretching thin fingers across the doorsteps of more and more global citizens. Let's take a look at how our old systems of efficiency and concentration are meeting the risk profile of our era, starting with climate change.
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