A friend works in the pharmaceutical industry and described how a particular extremely profitable non-narcotic sleeping pill is made. A Japanese company developed the pill at their lab in Osaka. These are the high value jobs that the Japanese are keen to keep at home. The chemical components that are used to make the pills are just bulk commodities. They can be made anywhere so they’re sourced in places like Indonesia, Malaysia, and the Philippines where labor is cheap, foreign investment is heavily subsidized, and special tax holiday arrangements are always available. The pills themselves are fabricated in a plant in Ireland which has the optimal combination of favored tax and trade regimes with Europe and North America. Finally, the pills are sold in the most lucrative markets around the world, not least of which is the U.S. where the retail price of drugs is exceptionally high relative to the low cost of manufacture.
That same process of global supply chain management is repeated for every single product you’ve ever bought. Your car, your clothes, your dish washer, your cell phone, the food you eat… everything. It’s one of the reasons such a spectacular array of products is available to modern consumers. And let’s not forget that you probably bought many of these items on credit. When you swipe that little plastic card at the shop you’re tapping in to an equally convoluted chain of interlocking financial institutions that stretches around the planet and includes pension funds for school teachers in Germany and insurance companies in Hong Kong.
All of these transactions are organized with a just-in-time delivery system. When a box of breakfast cereal or a package of lag bolts is waved over the laser scanner at the check out counter a computer automatically orders the exact number of replacements to be restocked and shipped the next day. The order goes straight to the manufacturers who know exactly how many new units to churn out that week. And that orange juice you’re buying used to be trucked in from Florida or California, but these days it’s more likely to come from Brazil.
We no longer have local warehouses full of stored goods. Instead we have centralized distribution centers. These massive buildings oversee a high turnover reshuffling of products that arrive by truck at one end and are split up, regrouped, and sent out to trucks on the other end. Items pass through very quickly. There is no storage per se since that would be inefficient and expensive. These facilities are always built in low cost locations with the support of local government incentives and inducements. Your Ikea coffee table probably spent a day or two inside this particular building in the desert on its way from Asian factories and the sea port in Long Beach to your living room in Ohio.
When families chose a place to buy a new home they look for a well regarded school district, low property taxes, and a location that’s halfway between the husband’s employer thirty minutes away in one direction and the wife’s employer thirty minutes away in the other direction. That’s the sweet spot in terms of price, quality, and convenience. It’s the same basic decision making process as the Japanese pharmaceutical company on a smaller scale.
Why should you care about any of this? Well… look in your fridge. That is the grand total of the food that’s stored in your entire community. The supermarket shelves will go empty in three days without continuous deliveries. The distribution centers that supply necessary medications are most likely in another state. Replacement parts for every machine you rely on are twelve thousand miles away. And the money and fuel that keeps all these distant elements connected and free flowing across oceans and continents are both incredibly efficient and extraordinarily vulnerable. What could possibly go wrong?