Supply chain blues : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Somebody out here critique my reasoning, por favor. Does this scenario work for you? Or not? Why or why not?

Here's an example of how even "minimal" disruptions could seriously mess things up.

Let's assume that y2k errors are, superficially, pretty mild with regard to individual businesses. Most people finish their so-called "mission critical systems" and rely on less efficient (but functional) "workarounds" to mitigate the failure of "non-critical systems." Let's make the gross estimate that in January 00--at the peak of the worst Y2K errors--Y2K problems make individual businesses run at only about 80% efficiency, internally.

Business A supplies business B and business B supplies business C, and so on... So A gets to run at 80%. Not bad, if the situation is temporary. But wait. Business B is already running at 80% efficiency, but it's only getting 80% of its critical supplies in enough time; so it's going to suffer by working at 64% effciency. Business C relies on business B which only does its job at 64%; so C only functions at 50.2% efficiency...not enough to stay afloat so it dies and 100 more people are waiting in the breadlines...and so on and so on.

I realize that this may be oversimplified and that most businesses can improvise and find secondary suppliers, but WHAT IF? Is it not possible that even a fairly minor increase in economic friction can topple the "Just-In-Time" economic system we've all grown to know and love? Will it possible to stop such a cascade from feeding itself and growing like a malignant cancer, like in the Great Depression?

Just wondering.

-- coprolith (, March 16, 1999


Hi! I think your basic reasoning is correct. Whether we get a "Great Depression" scenario I believe depends on whether the small and midsize companies can get their systems back up and running. The idea that "we will fix it when it breaks" sounds great in theory, but the reality is that if large numbers of companies have this idea, there will not be enough "break fixers" to go around when the problems come, pretty much all at once. So they may hope "break fixing" only takes a few days - and they have supplies to cover those days - but instead it will take months while they are in line waiting for help. Sincerely, Apple

-- Apple (, March 16, 1999.

An Example. Will we see a slowdown in the construction industry, just because of a shortage of drywall? Sound rididculous? It could be reality this summer. Well, can't they just ramp up on drywall production?

Along with the paper and chemical businesses, drywall makers seemed to develop a knack for building expensive new plants just as recessions were about to begin, with disasterous results. So as the 1990s began, investors didn't even want to hear the word drywall, and as the economy began its current expansion in 1991, the industry wasn't in a position to finance new plants. For the past 10 years, Mr. Walker says, there hasn't been a single new drywall plant opened in the U.S. That might seem like long-overdue self-discipline on the industry's part. But during that time, fundamental shifts in demand for housing occurred, and the industry - for once - vastly underestimated demand for its product.

OK, the "great drywall shortage of 1999" isn't Y2K related, but it has parallels. A single product shortage could mean serious problems for an entire industry. Now multiply it by xx%, and the picture comes into focus.

Drywall shortage hits South Florida

-- Online2Much (, March 16, 1999.

Coprolith -- Your scenario is reasonable, in principle, but we have no known way to quantify it. We can assume that redundancies have been squeezed out with JIT that might have helped soften blows in the past, but we really don't know how resilient the overall system is, or, to be more precise, at what level it "devolves" (cf Infomagic).

We also aren't too sure of the critical chokepoints, with the obvious exception of utilities and fuel.

It could be far better than you speculate (even, let's say, many companies go down but the ones that survive are "hardened" and pick up the slack for the rest of their industry over a one- to two-year period) or far worse (ie, perhaps a drop of 10% efficiency across-the-board will be fatal to the system).

-- BigDog (, March 16, 1999.

O2M - I like your drywall analogy because I do think drywall could be a y2k issue. Somewhere in the northern states there are likely to be burst pipes as a result of y2k-related electrical outages. In the old days, your insurance company paid for it and you got in line for your contractor to repair it. But your insurance company may well not reimburse you for this kind of y2k incident (check first), and even if the money is there, the repair supplies could be in short demand. If the railroads are operating below peak efficiency, building supplies are what I understand from prior threads to be the type of single-car shipment that may not receive priority. So, 80% efficiency in railroad operations could translate to 0% drywall being shipped.

-- Brooks (, March 16, 1999.

Apologies to those who've already heard these Fran experiences: after two days without power (TWO!) in Durham, NC, there was a fight over 50 newly-delivered generators at Home Depot; a fight when a gas station ran out of gas; and this old git almost got clobbered by a nicely-dressed matron gesticulating with a styro ice chest, next in line when Old Git got the last bag of ice. A small breakdown in the supply of one item can a fight spark when people are under stress. And it doesn't take much to turn a fight into a "civil disturbance."

With regard to a looming drywall shortage, you reckon Martha's going to be pushing paneling as the next "home fashion"? Will lath and plaster come back into style? Maybe someone can figure out a way to use all those 5-gallon buckets for walls. . .

-- Old Git (, March 16, 1999.

I agree with BigDog on the futility of attempts to quantify supply chain scenarios. Almost everything you plug into any equation is an unknown.

In manufacturing, the failure to receive one critical part means shut down, not reduced output. That's why they're labeled critical. Since one parts or component vendor may supply manufacturers and assemblers across a wide swath of industries, the impact could be felt by hundreds or thousands of companies.

Case in point: Imagine all the companies in the world that manufacture products containing printed circuit boards. The inability to "deliver" (for any reason) one resistor, diode or capacitor would stop their production in less than one week. Since most factories are already attempting to operate at 80%+ efficiency, vendors capable of delivering don't have the capacity to take up the slack if 2 or 3 major suppliers are unable to deliver.

It's just too horrible to think about. There is no workable contigency plan for such a scenario. Is is possible? Yes. Is it probable? I don't think anyone can make an educated guess. There's just not enough information to quantify or substantiate any guess.

Neither Gary North nor Y2KPro can offer any valid probability.

-- PNG (, March 16, 1999.

What if the government checks stop coming and people do not have the money to pay for groceries, fuel and other needs. The businessman has higher costs, reduced income, supply problems, no buyers with money and possibly no heat or banking system. A person who planned ahead could go bankrupt due to problems beyond his control such as those noted above. This is a primary reason to buy food ahead even if the supply chain is still functioning at 80 per cent capacity which is not likely for at least the first month or two.

-- Steve (, March 16, 1999.

Neighbor Git strikes again. While the analysis is reasonable as stated, the major delta overlooked is... human factors. All it took was a joking remark by teevee host Johnny Carson to provoke a TP shortage a couple of decades ago. For some time now John Q. Public has heard all this stuff about y2k. The rumor mill is on overtime, the wilder the better (GOVERNMENT BUYS 25 MILLION BODYBAGS! for example). The pumps are sort of primed, and if something somewhere gives John Q. the idea that OMIGODIT'SY2KWE'REDOOMED!!!!!!! the stampede will be on, and all bets will be off.

-- (li', March 16, 1999.

Suprised no one put money into the equation , AS part of job loss, even for a few weeks. Learned in an economics class in 1951, that a dollar is turned over (respent/loaned/bill paid etc.) ON THE AVERAGE OF TEN TIMES IN ONE DAY !! Reverse this; 100 people don't spend $20 dollars in a small town/city and you have a $200,000 loss in business IN ONE DAY ! How many days until small/large business's lay off workers due to loss of revenue. THIS is what the Great Depression was like that I lived through. When one of the Scripps Howard Newspaper owners decided to build a new home, my father became foreman of the job and the men he hired were so grateful to be earning the $1.25 an hour for about 3 months, they chipped in and bought him a silver watch , which I still have.

-- Harold Walker (, March 16, 1999.

Basic reasoning is correct if efficiency is the problem, ie. instead of one unit output for one unit input, we can make only half a unit output for each one unit input. Then the problem multiplies as described. But it seems to me that the problem is more likely to be one of capacity: we can normally make X units output, but now can only manage half that many. Now the multiplication goes away. As long as I'm getting enough supplies to meet my reduced capacity, I can produce to that capacity. I'm limited by my worst supplier, though-- if that supplier is down to 10 percent capacity, then so am I. Now that I'm down to ten percent, so are the people who depend on me. The overall system tends to sink down to the level of the least competent.

With manufacturing, for example, it's always going to take one steering wheel input for each car output. You never reduce efficiency and need two steering wheels per car. If you get half the steering wheels, or only have power every other day, that reduces your capacity by half. If both those things happen, you still reduce your capacity by only half. Even in services, your capacity is your labor times the amount of work each person can do. If that work per person drops by half (reduction in efficiency), that's a reduction in capacity. If only half as much work comes in, I can do that much--I don't reduce output to a quarter.

Of course, that's assuming my people stay on the job. I can only pay them half as much. So if half of them quit, now I can only process a quarter as much. So half of the remainder quit, then half again...pretty soon it's down to just me! In normal circumstances, I would be out of business. If everybody is in the same boat, maybe my people will stay on the job at half pay, 'cause there aren't any better options.

-- Shimrod (, March 17, 1999.

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