Supply Chains

A farmer grows vegetables in a large garden plot, perhaps an even larger mass crop. The produce ripens, is picked, and sold and distributed to local stores and regional distributors. That is the beginning and end of a supply chain. Simple. Direct. If local enough, some of the middle men can be eliminated and the end customer can go to the farmer and buy produce directly from him.

Not so when distance is added to the formula. A customer doesn’t drive 500 miles to buy food produce. They might to buy a car from a manufacturer and drive it home. Long ago this was a practice, but not common. We had a neighbor in California who used to travel to Detroit and buy a new Cadillac every so often. He got a new car and a vacation at the same time. Fun.

Today, distance is most often a foreign country. Shipping by air or boat is required. International customs muddy up the transaction as well. Still, some new car buyers arrange a purchase of their Volvo in Sweden, or a Mercedes in Germany. A European vacation is involved, but still shipping the car back home is a large problem to arrange.

Complicate the transaction even further with far flung foreign lands difficult to travel to and ship from. Bangladesh comes to mind, African villages, too, or manufacturing plants in China, Viet Name and Malaysia.

Maintaining good relations with customers is important. This becomes a foreign relations policy for many nations. When such is not the norm, say like China today, customer relations suffer, and shipping and customs problems become large problems. Do this enough and foreign buyers will move their business to other suppliers with friendlier international relations. Playing politics with business will destroy business quickly.

I think China has already experienced this and will continue to observe huge losses in their international trading partners. Foreign investors are already abandoning their manufacturing sites and replacing them both at home and in other nations easier to do business with.  It may have started with COVID quarantines and shutdowns, but foreign relations policy soon entered the picture. A nation doing this will lose much more than it gains.

The same is true with domestic American companies. They are finding investing locally has more attraction than they one thought. Lower wage costs are only a part of the profitability picture. Supply train is big. Quality is as well. Price and profit margins rely on many moving pieces of a product’s life.

It would help if greed were eliminated from this decision-making process. Legislators and lobbyists beware - customers are much more aware of bald manipulation to build value for narrow interests.

Discuss this with the American auto industry. They diddled when foreign manufacturers were perfecting their products. Now foreign brands dominate American garages and roads.

December 28, 2022

 

 

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