Fairly late on Friday evening a colleague sent me an email with earnest, even urgent questions regarding likely supply chain outcomes over the next three to nine months. She is concerned about the same issues which I am closely watching. Probably you too.
As due diligence, I reviewed the usual rate-limiting parameters: Russian aggression (including lost food flows); sanctions on Russia (including more friction in global fuel flows); collateral damage from China’s Zero Covid strategy (including reduced aluminum flows); significant swerves in demand caused by inflation, possible recession, or other macro-economic behaviors; over-concentration and recurring congestion of supply networks; labor churn and lost productivity… You know the drill.
But my answer consisted mostly of questions. Here is a rough line of inquiry abstracted away from any specific product categories:
What are your current service levels on average? Are you tiering customer service? If you are tiering, what is the service level difference between top tier and bottom tier? Any near-term way to narrow this gap?
Compared to recent demand for your products/services, is upstream capacity on which you currently depend adequate? If not, proportionally how inadequate?
How concentrated is your upstream capacity? Given that concentration, how vulnerable are you? How concentrated is downstream demand?
What are the time and capital requirements for increasing your current capacity by 20 percent? How about 40 percent? Ask the same questions for upstream capacity.
What is the risk of essential inputs (either material or functional) being threatened by loss of upstream capacity?
Under what circumstances might current demand experience a substantial reversal? Is there a reason to perceive stubborn demand for your products? Why or why not?
If there is cause to perceive stubborn demand for your products/services, what scope and scale — especially duration — of demand destruction is survivable? How can this survivable “space” be extended?
What proportion of flow from upstream sourcing to far downstream consumption moves through dedicated modes and channels? How much depends on spot market tenders being accepted? How elastic is this capacity? Are there geographic or modal or functional work-arounds or supplements?
Frankly, I assumed my friend would find this line of inquiry unhelpful. I cannot, however, pretend to predict how myriad supply chain complexities (and even contradictions) will play out given the current context. But while external threats must mostly be imagined, internal vulnerabilities can often be measured.
Earlier today my friend forwarded a note from her CEO, apparently the questions were meaningful to him. So, I have decided to share with you too.
In profoundly uncertain contexts, self-critical questions are usually more constructive than trying to guess the intention or future action of others.
A mentor (now dead) said, “Even the best answers are ephemeral. Our best questions are eternal.”