Systems and Supply Chains

November 10, 2021 • #

You can’t touch current events online (at least in circles I follow) without running into 25 opinions on what’s causing our supply chain lock-ups.

Global supply chains are just about the most interesting examples of systems by the traditional systems thinking definition. They have stocks and flows, feedback loops, and nonlinear response dynamics, plus they’re highly visible, global, and impact each of us in very direct ways. Because everyone on earth is impacted directly by these problems, we’re hyper-aware of the issues, which drives the experts out of the woodwork to flex their Dunning-Kruger muscles.

My diagnosis in all the reading I’ve done is, generally, if you think there’s a single pinch point or monocausal explanation, you don’t understand how systems work.

That being said, I always love to hear what Venkatesh Rao has to say on complex systems like this. As much as we think of supply chains as an “old world” system of technologies, Rao points out that the analysis on the issue so far “seems to adopt the posture that we are talking about a crisis of mismanagement in a well-understood old technology rather than a crisis of understanding in a poorly understood young one.” Meaning, an enormous number of the contributing innovations to the modern supply chain are a decade or two old. Automation, algorithmic cargo sorting, the buy/sell economics of e-commerce, epic Panamax super containerships. All of the novel contributing innovations aren’t as well understood as we think they are, especially the impacts they have when they fail. It’s worth remembering that due to its sheer size and entangled complexity, a global shipping supply chain is a networked combination of entities designed individually, but interfacing with one another. No committee sat down and laid out the infrastructure, policy, transportation protocols, or decision making processes that would get silicon from a factory floor in Shenzhen to the chip in the car in your driveway. Rao reminds us to think of this network as an emergent one:

The thing is, a supply chain is mostly an emergent entity rather than a designed one, and its most salient features often have very little to do with its nominal function of getting stuff from Point A to Point B. That’s just the supply chain’s job, not what it is. What it is is a homeostatic equilibrium created by billions of sourcing decisions made over time, by millions of individuals at businesses around the world making buying and selling decisions over time.

When a complex system is breaking down, when there are stopped flows or undesirable negative feedback loops, we have to carefully pick apart the system’s interrelationships to find root causes. In an interesting could-only-happen-on-Twitter turn of events a couple of weeks ago, Flexport founder Ryan Petersen possibly single-handedly unplugged one of the many possible clogs in the system when he cataloged Long Beach Port issues in a thread, chasing down one example bottleneck in the local area’s container stacking limitations:

The gist was: there aren’t enough trucks to pick up and haul the unloaded containers, so they need to be put somewhere on-shore. The stockyards used for holding containers are subject to regulations where they can’t stack them more than 2 units high. Therefore, an ever-growing fleet of ships sit at anchor until the clog is removed. But even this simple political solution isn’t the only friction — what’s causing the lack of trucks and/or drivers? Why don’t we have fallback locations ships can be rerouted to? We have a complex and fragile system subject to too many failure points. Big monocausal opinions don’t paint a realistic picture, even if there’s truth in them. “It’s all the longshoremen unions!” or “it’s consumerism!” or “we should reshore all manufacturing from China!” are all claims with some possible merit to them. But responding to only one of those will do next to nothing. The system will evolve around changes you make.

Supply chains are emergent functions of millions of individual interactions between nodes on a network. Changing individual policies doesn’t cure all of the system’s ills, but neither does sitting around blaming one another with simplistic claims about who or what the problem is.

Image credits: Unsplash