Three Legged Stools (4th leg needed?)

Goldman Sachs has conducted a textual analysis of earnings call transcripts since 2010 for Russell 3000 companies. This focused on supply chain references overtime. The researchers found that these companies have recently focused on three strategic options: “Reshoring appears to be limited so far, as construction of new manufacturing facilities has mostly gone sideways and imports are still growing faster than domestic manufacturing output. Diversification of supply chains appears to be further along, and inventory overstocking is the strategy that’s most clearly underway.”

Many want to conceive and craft more resilient supply chains. Rana Foroohar calls out the choices — and balances? — between localization, decentralization, and redundancy.  Gillian Tett focuses on mapping concentrations to work through potential disruption scenarios and/or stockpiling, and/or lateralization (diversification of sources and operational functions). Geoffrey Gertz suggests mapping, stress testing, and diversification.  

It says more about how human cognition works than the essential structures of demand and supply networks, but some form of three dimensional analysis often recurs. Usual suspects include:

1. How Much Stuff: Also-Known-As overstocking, buffering, safety stock, just-in-case capacity… Perhaps mass?

2. From How Far Away: AKA reshoring, back-shoring, near-shearing, localization, close-to-customer… Perhaps distance? If distance, then potential velocity must be part of the resilience package.

3. From How Many Sources: AKA de-concentration, decentralization, diversification, redundancy… Perhaps centrality? (More below)

Is “de-globalization” an issue of how far away or how many sources?  Some of each, it seems to me, depending on demand for what is needed (or wanted) where.

Mass, distance, and velocity are familiar topics; centrality less so. I suspect that centrality is often the key resilience multiplier (or divider) for demand and supply networks. In a network of many nodes, some nodes and connected channels have the capacity for much more flow. Some nodes feature many short paths to other nodes, many nodes have only a few paths. The more central nodes and channels can facilitate high volume, high velocity flows. Loss of these more central nodes can seriously constrain flow capacity. Below is a less than six-minute video with further explanation.

More mass moving faster over less distance from more places is usually less vulnerable to disruption and more likely to prove resilient in case of serious disruption — unless sources are placed so close as to subvert the benefits of more places [supply chain “clusters” are a thing]. Distance of source capacity from disruption can be helpful, if sufficient channels remain open or can be reopened. High proportion dependence on concentrated sources very close by will increase risk of catastrophic failure. So, perhaps: More mass moving more-even proportions at a comparatively constant speed from more disparate places far and near toward well-defined demand targets, better ensures demand fulfillment. Distributing capacity far and wide minimizes the risk of losing network capacity.

Demand is often implied in these trinitarian approaches, but treated as an independent, even non-constant variable. Yet supply chain professionals and processes depend on demand mostly remaining within a predictable range. Supply capacity organizes around demand capacity. Highly concentrated demand can create vulnerabilities as extreme as concentrated sources or channels or modes. Excess demand, demand destruction, or extreme demand volatility will quickly increase various frictions in flow. To achieve enhanced supply chain resilience, we need to more fully engage how pull shapes push to create flow… another example of the rule of three.