Demand-Supply Dialectics

This is the seventh — and perhaps final — in a series of posts examining supply chain resilience reports released by the White House on February 24.

Most of the “Sectoral Supply Chain Assessments” are grounded in recent challenges, especially pandemic-prompted problems. The energy report is an outlier with much more attention to emerging issues of climate change (more).

Each report tends to be preoccupied with upstream concerns and complications related to sourcing and production capacity.

Each report gives attention (some more, some less) to potential over-concentration of upstream flows. Significant dependence on proportionally few high-volume nodes and channels increases network vulnerability. This could be the most helpful insight identified by the reports — when accurately and meaningfully received.

None of the reports give much attention to the influence of downstream demand on upstream behaviors. Mid-stream is sometimes treated as almost detached from up or down. In my judgment, this tendency fails to reflect fundamental realities.

All of the reports are mostly examples of the public sector — really just the federal sector — talking to itself. This can be helpful, especially if this internal process is conducive to ultimately involving other sectors in well-conceived shared conversations. [Conducive: connect, bring together, collect, join, assemble]

As a collection, the assessments are culturally coherent (reflecting a generally shared understanding of problems and problem-solving-processes), but strategically inconsistent, maybe even strategically incoherent. Key connections between the five policy documents examined here (also see note below) remain obscure or simply absent. This is not uncommon (or even unexpected) from a year-long interagency process. But supply chain practitioners, network scientists, and even some public servants will be annoyed by the interstitial opportunities lost in the process.

I want to avoid damning with faint praise. I recognize earnest, expert effort expended on a very difficult problem-set during a troubled time. I know the challenges of interagency policy-making well-enough to envy no one involved therein.

I also discern in these reports an implicit, fairly consistent operating thesis that would benefit from more explicit consideration. Behind the references to resilience are concerns about scarcity or shortages or insufficiencies. Medical personnel operating without Personal Protective Equipment and car factories closing because of unavailable parts and empty shelves where meat or soup or toilet paper have usually appeared are all recent realities. But in the vast majority of such cases, supply has not been scarce (as in rare, diminished, or poor), rather supply being pushed has often increased, but demand has pulled even faster.

Demand and supply networks (worthy of the designation) organize around demand to achieve a rough equilibrium of pull and push. The give and take of demand and supply is tangibly interdependent (and mirrored in more fungible financial flows). In mature-capitalist high volume, high velocity networks, scarcity is typically more relative than real. A disequilibrium of demand and supply may well reflect a shortage of what is wanted by producers or consumers. But this need not reflect reduced supplies. In early March 2022 grocery stock-outs in the United States are most often the result of reduced capacity to load and drive delivery trucks, not reduced production. In March 2020 grocery stock-outs in the United States were the result of a doubling or more of demand in a two week period. Swift shifts in demand capacity or distribution capacity are much more frequent culprits than lost production capacity.

Disequilibrium can certainly be caused by scarcity. A drought (literal or metaphorical) may unfold into famine for those unable to relocate closer to necessary flows (or attract such flows towards them). But it seriously complicates problem-solving to treat disequilibrium caused by flooding as if it was the result of drought.

Rather than assume scarcity, we should seek to discern disequilibrium as an expression of dynamic interdependencies encompassing both demand and supply, density and distance, differentiated durations, capacity and capability, pull and push. Supply and demand interact to create flow, assimilating aspects of both supply and demand.

On Tuesday a private-public group convened in the Old Executive Office Building. Around the table were enterprises, such as Albertsons, Target, and True Value, that focus on consumer demand. Others, including Land O’Lakes, focus on supply. Several at the table concentrate on moving supply toward demand by water, air, or land. Midstream — long-distance to last mile — was especially well-represented. These organizations have agreed to start-up a “first information exchange that will support a more resilient and fluid supply chain.” The voluntary collaborative effort is branded “Freight Logistics Optimization Works” or (of course) FLOW. According to the White House, the meeting participants discussed,

… greater data transparency across the supply chain and how this would benefit not only their respective companies but also the system more broadly, cutting waste and reducing costs for consumers. Participants acknowledged the current system is underperforming and needs greater investment and more collaboration in creating ship to shelf visibility into the primarily private-sector owned supply chain. A more reliable, predictable, and accurate information exchange about goods movement is the hallmark of a globally competitive 21st┬ácentury goods movement chain and is especially important for small- and medium-sized businesses who lack visibility into the current system. (More.)

This is an early step to facilitate ongoing communication across the various phases of flow, allowing collaborators to observe and engage a more comprehensive context — something close to the full watershed of flows — not just near-term consequences of near-by discharges. In this way, it is hoped, individual participants will be able to adapt earlier and more effectively — even collaboratively — to factors that could disrupt flow.

There are plenty of reasons for FLOW to fall apart before having a chance to demonstrate value. There are even more reasons to hope the initial participants are soon joined by many others. Enormous value is possible if participants can work through tough technical issues, treacherous competitive dynamics, and complicated regulatory prospects. FLOW is a co-laboratory where all the contending, pending perceptions set out in the supply chain assessments can be empirically and practically engaged — clarified, corrected, and even confirmed.

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Still to come is a brief note on the sixth Sectoral Supply Chain Assessment by the Department of Defense. It will appear below at some future date (maybe this weekend).

March 19, 2022 Update:

Among the February 24 Sectoral Supply Chain Assessments is DoD’s “Securing Defense Critical Supply Chains.” Of the six One-Year assessments delivered, this is arguably the most sophisticated with balanced attention to critical needs, systemic capacity, production/ distribution vulnerabilities, and aggregate demand. For those involved in the Defense-Industrial complex, this is a helpful analysis and set of recommendations. In my judgment, however, even with a $700 billion-plus budget and admittedly contentious, complex demand signals, DoD’s planned procurement supply chain is substantively differentiated from demand and supply networks organized around mostly unplanned purchasing decisions by tens-of-millions of independent consumers. For example, Americans spend more than double the Defense budget on Food At Home and another double on Food Away from Home. Supply chain thinking is relevant to military missions — as dramatically demonstrated in Ukraine. But there is a command-orientation to the Defense supply chain that is antithetical to the highly competitive demand-orientation of high-volume, high-velocity commercial ecosystems. This is why I have not given this assessment the same attention as to the other five.