Globalization’s Downside: Increased Risk of Sudden and Unavoidable Shortages

It isn’t just fuel supply lines that have become stretched long and thin due to globalization and the corporate drive for cost reduction.  Other products are affected, too, as their manufacturing is concentrated in fewer and larger facilities.   The iPad factory explosion in China May 20, 2011. threatens to reduce Apple’s sales of the product as well as any other products that incorporate the popular tablet computer.  So how did we get to this state of affairs?

Globalization has been driven by extremely low cost container-based shipping, which has enabled corporations to move manufacturing whereever costs are the lowest.  That, combined with the pursuit of manufacturing business by the Chinese government, has led to extreme concentration of manufacturing to just a few Chinese facilities for many products.  That concentration has resulted in some extremely high volume products becoming nearly “single-sourced”, and has increased the risk of interruption of the supply of those products.

Another example of the increasing supply risk created by globalization and the corporate drive for profits can be seen in the effect on global automotive manufacturing caused by the Japanese tsunami.  Serving increasingly huge markets at lowest possible cost, driven by a short term market-focus, is pushing corporations to take on more risk both in long-range, “low cost country” sourcing and in the consolidation of both production and transportation.  When a particular, specialized component is made in a single factory it presents increased risk of supply interruption and shortage, but when that factory is on the other side of the planet and regional manufacturing is retired, any glitch in either the output of the factory OR the long transportation lines to get the product to us leaves us empty handed with no closer facility ready to close the gap.

All of this, of course, is driven by the skyrocketing demand created by the population explosion.   Will we get smart enough soon enough to avoid disasters of ever larger proportion?

As always, I welcome your comments.  – Tim


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