Commentary: Supply Chains Are Having An Even Bigger Moment
About the Author: Brian Laung Aoaeh, CFA, is a Cofounder and General Partner of REFASHIOND Ventures, a leading early-stage venture capital firm investing in startups that refashion global supply chains.
Doesn’t it seem as if supply chains have been in the news every day since the earliest days of the COVID-19 pandemic twenty months ago? This time, however, supply chains are in the news because President Biden is reported to have said to White House reporters; “By the way, you all write for a living. I haven’t seen any of you explain the supply chain very well.”
He made that comment in the context of the now legendary and record-breaking accumulation of container ships at the ports of Los Angeles and Long Beach that are creating shortages of all sorts of goods in the United States. For many people in the United States this is the first time they’ve had to think about how supply chains function.
Until the COVID-19 pandemic began, supply chains were a very distant afterthought, or as someone said to me in late 2019 when my partner and I had started pitching an early-stage supply chain technology venture capital fund; “Why would anyone care about supply chain technology?”
If you use any type of product, there’s a surprisingly complex network of organizations and people who work collaboratively with one another to obtain, process, and combine all the raw materials and inputs required to get that product from whoever makes it to you — the end consumer. If you use a service, that service has an analogous network of its own.
The thing that comes as a surprise to people who have never experienced the inner workings of a supply chain is just how incredibly complex supply chains are, even for what seem like mundane products. Moreover, the process of sourcing raw materials, manufacturing, transportation, warehousing and distribution, and final delivery to the end customer requires a huge exercise in coordination.
These days supply chain coordination occurs across international boundaries and multiple time zones, making events like the the Ever Given being stuck in the Suez Canal just one of the plethora of incidents that could upend the tightly wound, and finely tuned, efficiency and equilibrium that has been built into the supply chains companies have designed to enable then get the products they sell from their point of production to their point of consumption.
There’s another reason supply chains are in the news; The United Nations Climate Change Conference, COP26, has been taking place in Glasgow, Scotland, United Kingdom, since 31 October and will run till 12 November. At first glance, COP26 is about the Climate Crisis. However, on further reflection one realizes that COP26 is really about how we design and manage the supply chains that make the world we take for granted possible. The debates that are raging over how quickly the world must transition from fossil fuels to renewable sources of energy are incredibly consequential because supply chains run on energy; The debate over how we power the world is really a debate over how we power the world’s supply chains.
Climate change and supply chains are opposite sides of the same coin. Therefore, we are in the early-stages of a technology-driven refashioning of global supply chains in order to confront the climate crisis. To get a sense of the scale of the transformation that we will experience: On October 27, HSBC and BCG published a report estimating that “Global supply chains need USD100 trillion of investment by 2050 if they’re to achieve net zero — and as much as half of it is required by small and medium-sized enterprises (SMEs).”; In September, Goldman Sachs published a report estimating that there’s a need for $56 trillion “of green infrastructure investments to meet Net Zero by 2050 in our GS 1.5° scenario, driving technological innovation throughout our Carbonomics cost curve.”
What this means is that the protests against COP26 being voiced at events like the COP26 Counter Climate Summit and the protest march which is reported to have drawn more than 100,000 people to Glasgow on November 6 are really protests about the cause-and-effect relationship between man-made supply chains and the climate crisis.
As my co-authors and I observed in our March 23, 2020 An open letter to the Supply Chain Caucus of the U.S. House of Representatives; “Supply chains are formed from a complex and interconnected network of social, environmental and economic systems. If any one of these subsystems suffers a catastrophic failure, the entire system fails. Moreover, it is generally impossible to predict when a catastrophic failure might occur, or in which subsystem such a failure is most likely to occur.”
It is no wonder President Biden is also reported to have said; “You can understand why people are upset, whether you have a Ph.D. or you’re working in a restaurant. It’s confusing. People are understandably worried.”
Supply chains are having another moment, and this time it is an even bigger moment than they had in March 2020 when I first said; “ Supply chains are having a moment.
People may not understand supply chains, but they understand when life starts becoming uncomfortable, and that’s what’s suddenly happening, except it’s been happening suddenly for 20 months.
Originally published at https://innovationfootprints.com on November 7, 2021.