What a lot of people do not understand is the fragility of supply chains.
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@rcosta @eckes @jt_rebelo @masek
Any link not solvable is a disaster. That's the point.
It's more common than people imagine and sometimes the reason for a product sold out and 2 years later no replacement. Then later the supposedly replacement product is inferior, or never appears.
See Kobo Sage 8″ ereader.
Yaesu attempted to replace FT817ND with FT818ND, but had to cease that too due to lack of parts.There are many more examples of inferior or no product replacement. It will get common.
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@rcosta @eckes @jt_rebelo @masek
Really big companies don't care as they are marketing a brand. -
What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
too true
hubby is in industrial scales & is in charge of knowing what & how to implement part X for multiple factories in multiple industries... when he nearly died, they finally woke up to the fact he might need an apprentice
who cares if Atlas shrugs but once the scales are no longer accurate, nothing works & things mixed wrongly in factories blow up...
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
@masek I've experienced that... HQ woke up after I left but then they had to invest a lot to get ilthe whole company working again and as wel in damage control.
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@Stinson_108
No. I've seen this happen in the company I worked for until 2012. Back then there was no problem with shipping lines, tarrifs, etc.
It took them a few years and a lot of money to restore damage. Knowledge AND image... -
What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
My brother works in a jewelry factory-- there is no crisis if they stop making a particular item, but they do employ loads of skilled employees - machinists, polishers, etc. Over the years he's frequently had to explain why it's a bad idea to lay off these people during down times. Skilled polishers save you money. Skilled machinists save you money.
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
Excellent post - thank you.
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@rcosta @eckes @jt_rebelo @masek
That's a rare example of 3D printing to the rescue. Helped due to low volume.No, it's not primarily environmental. It's lack of investment in training, lack of open source documentation (or even any under NDA) and lack of second sources.
Yes, building to last, repair and reuse are important. But only tangential to supply chain risks.
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
@masek And part X's specification was ill defined all along. The new supplier interprets it differently and the products don't work with the part X from the new supplier.
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
@masek
In Silo / the Wool series, was the concept of "shadows", or more commonly, apprentices. You don't stop your work to train your successor, they work beside you, first carrying the tools, then holding the tools, then using the tools.We used to call it "on the job training", because it was.
And suppliers need to learn an important concept: when demand *drops* your price must *rise*.
That signals your buyers to either hold more inventory, or find an alternative, by either designing your part out or trying to convince someone else to make it. Both of which are harder than paying the increased price.
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Sounds a bit like the story of COBOL.
I wonder how many financial institutions still rely on COBOL somewhere in their systems and have nobody in-house who understands it?
Instead relying on outside contractors employing the few remaining and ageing COBOL specialists.
What happens when they finally retire and/or die?
@gwentlarry @masek The Dutch government. In a frenzy of neoliberal market think they left many things to “the market”, getting rid of civil servants with domain knowledge. “Small government”, you know?
It got so bad that they couldn’t even put out a proper tender or manage an infrastructure project. And don’t get us started on government IT projects.
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
@masek much of what you describe has parallels in the US academic scientific enterprise. Labs are specialized. They use unique, often home-grown, assays and equipment. Technicians keep them running and train replacements. When there’s a lapse in government funding (ie grants and contracts), staff/knowledge are lost, equipment fails, and it’s remarkably difficult and costly to return to normal if funding resumes. #science
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@masek
Also the machine or part may be a design never patented, so as to keep it a trade secret. Or the patent only covers an earlier uneconomic version.
Text books, patents, Wikipedia etc only have general theory or descriptions. None have the exact "recipe" of Part X or the machine to make it.This makes Musk's claim to be setting up a semi-fab production for ICs (GPUs, RAM, Flash, CPUs etc) in space somewhat dubious. He'd have to buy in existing machines & experts. It's not public info.
@raymaccarthy @masek He’s planning what now? Does he have any idea what kind of environment and support ASML’s EUV machines require? And he wants to load one on a rocket and launch it into space?
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What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
There's a good argument that how well any enterprise manages its bottlenecks determines its success.
The Theory of Constraints (TOC) is all about ways to identify and effectively manage bottlenecks of all kinds.
TOC may not be the be all and end all, but I think it has real value for almost any endeavor.
https://www.tocinstitute.org/theory-of-constraints.html
https://strategiccfo.com/theory-of-constraints/ -
@raymaccarthy @masek He’s planning what now? Does he have any idea what kind of environment and support ASML’s EUV machines require? And he wants to load one on a rocket and launch it into space?
@ArtHarg @masek
No, he's going to make the chips in Texas or somewhere in USA.
Only the finished parts in space. The totally insane fantasy "Million data centres in space" plan. Theory is cheaper electricity.
Issues:
1. Cooling is really real hard.
2. No maintenance possible, short life.
3. Solar Electricity in space does use less batteries, but cost of parts is much higher and PV panels wear out faster.
4. Cost of Radiation Hardening
5. Cost of launches + building higher.
6. Manoeuvre fuel -
What a lot of people do not understand is the fragility of supply chains.
Setup
Let us assume there is a part X that is used by a large number of other companies. It is not glamorous, it is not expensive, and nobody outside a small circle of specialists ever thinks about it. But it is needed. Without it, other products cannot be finished.
Everything is fine
Part X is made by a small company with a few dozen employees and a machine that is several decades old.
Everything runs smoothly. The company knows how to maintain the machine. They know how to operate it. They know its strange noises, its moods, its undocumented rituals. They know which lever needs a bit of persuasion on cold mornings and which replacement part must be machined by hand because nobody has made the original since 1987. They also know how to train new employees, because the knowledge still exists inside the company.
Crisis
Then, suddenly, a few large customers run into a crisis.
Orders slow down. The warehouses fill up with part X. Prices fall.
The company downsizes. Then it downsizes again. But nobody really notices, because stocks are still full. Customers are not yet affected. Purchasing departments can still get part X from inventory. Balance sheets still look fine. The problem has not yet reached the spreadsheet.
If this goes on for long enough, the company goes broke.
Again, nobody really notices. Stocks are still full. Some people may worry, but as long as no current production line is stopping and no quarterly number is visibly bleeding, nothing urgent is done.
The employees move on. They retire, change industries, start new careers. The old machine is sold for scrap. The building is repurposed. The knowledge evaporates.
Recovery
A few years later, demand picks up again.
The warehouses slowly empty. Stocks run low. People start ordering part X again, only to discover that nobody is offering it anymore.
Now someone decides to restart production.
The first thing they discover is that there is no machine. Building a new one would be prohibitively expensive, assuming anyone still knows how to build it properly. So they desperately search for an old one.
They get lucky. In a scrapyard, they find a machine that used to produce part X. It is rusted, incomplete, and dysfunctional. Naturally, they buy it.
Now they try to get it working again.
But there is another problem. There are no people left who know how to maintain it. So they hire someone who understands industrial maintenance in general, but has never worked on this specific machine. That person does their best. They improvise. They read old manuals. They reverse-engineer undocumented fixes. They keep the machine alive with skill, patience, and increasing amounts of despair.
But it breaks down every few hours. Output is abysmal.
Bottlenecks
And now that one poor maintenance person is overworked. They need help. But training help requires time, and the only person who can train others is the same person needed to keep the machine barely running. Every hour spent teaching is an hour not spent preventing the next failure.
Very few businesses survive this phase.
There is no institutional knowledge anymore. New people are hired, begin training, look at the state of the machine, the chaos of the process, and the constant emergency mode, and conclude that the business is doomed anyway. Then they quit.
Churn becomes terrible. Even if the company survives financially, it remains fragile. It is always just one or two people quitting away from disaster.
At the end the world decides it needs to get rid of part X as the supply is too fragile.
Summary
This is still very much simplified. The reality is more complex, more ugly.
And that is the part many people miss: a supply chain is not just warehouses, contracts, prices, and transport routes. It is also people, habits, obsolete machines, informal knowledge, and boring little skills that nobody values until they are gone.
2021 demonstrated it's not even obscure parts - and that the entire supply chain can collapse for whole industries eg electronics.
and it's not even exotic parts - the mid 2010s capacitor shortage, blamed on a factory fire, was for everyday forgettable parts that cost fractions of a cent, suddenly became. Rumor has it that the fire had nothing to do with it, but the factories just wanted to up their prices from $0.003/unit.
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@masek and the consequences of AI. Once the knowledge is gone, it's probably gone for good or, at least, for a long time.
@jt_rebelo This is why we had to learn how to build rockets again.
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@jt_rebelo This is why we had to learn how to build rockets again.
@Gustodon don't remind me I should buy even more physical books...
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@Stinson_108 Iow markets are fantastic at finding an optimal (i.e. most profitable) solution unless you expose them to the real world.
@masek
