(repost from the Huffington Post, December 12, 2012)
By Luke Ho-Hyung Lee and Jess Parmer
Extreme risk aversion continues to oppress the economy, and recovery is very slow. Perhaps it is time for a new take on what was wrong in the first place. Maybe all this mayhem owed less to financial disruption than is widely believed.
Our 2-D Private Supply Chain Process Is a Nineteenth-Century Relic
Since linear supply systems were developed between suppliers and customers at the beginning of the Industrial Age, each supplier has had to construct its own supply chain network. This established two-dimensionally networked (2-D) supply chains in the overall market–a framework which has not changed, even under the modern information revolution. We call for an innovative approach, a supply system that possesses a third dimension, and is public as well.
The advent of advanced information technology forced suppliers in almost all industries to develop their own electronic supply chain networks, at great cost, significantly reducing the number of competitors in supply chains and increasing the efficiency of each function (for example, logistics or warehousing) through consolidation. Because of the superior market position of big suppliers and service providers with their private supply chain networks and fast delivery speeds, businesses which couldn’t afford such networks have weakened and over time been destroyed, and this is how many jobs disappeared. But the overall effect was that the 2-D supply chain in real markets became unstable, and this contributed to the decline of jobs in the market as a whole, unavoidably and continuously.
In this situation, the mantra for suppliers and service providers became, increase efficiency or die. So, they aggressively adopted IT progress, off-shored and outsourced to lower-cost countries, and broadly adopted automation in the form of robots. Accordingly, large corporations became job-killing machines. These developments have contributed to the weakness and near collapse of the general services industry (such as auto parts and paint sundries) and have aggravated unemployment.
The existing 2-D supply chain process, focused only on efficiency, ignores human intelligence and imagination, and treats ordinary workers like machine parts, easily removed and replaced. As a result, many full-time jobs have morphed into part-time jobs, and lower- and middle-skill workers have faced job erosion.
What then has happened to our efforts to generate higher growth and demand – and create jobs over the last four years? Unfortunately, with the efficiency-driven 2-D supply chain, the Information Age has emerged at the expense of employment, policies aimed at raising employment are treading water, and capitalism’s regenerative office has been slow in reviving. Abnormal economic phenomena--astronomical government budget deficits and extreme risk avoidance—have become salient. It seems we have staved off financial collapse by creating more if not worse problems. This is the capitalism of competition by size, and history has proven that it cannot solve its problems on its own.
Why Not Try a 3-D Supply Chain Process?
In limited ways, the electronic economy is doing just this: the Internet serves as a 3-D hub or platform between multiple information sources and recipients. But why haven’t we developed any such 3-D systems in U. S. supply chains, with strong operational feedback modules like Toyota’s? Real markets in tradeable goods offer little prospect of righting themselves anytime soon. This means that the disconnect between business needs and labor markets will continue without a lasting solution.
The authors have discovered the fact that our economy has erred in developing sophisticated technology-based transaction systems for supply chains over the last 30 years. Oddly, the processes of real-world markets have not been considered at all in developing private systems, and constructing a fair rule and standard for the public has escaped attention. Information technology has been misused from the start in developing such 2-D transaction board games.
The Supply Chain Revolution Is a 3-D Public Supply Chain System
We believe a new 3-D supply chain system could easily be developed with largely off-the-shelf technology to overcome restrictions of time and space in commerce by improving major real-world business processes in transaction systems. A networked public supply chain infrastructure, bundled with third-party infrastructure for communication and peripheral networks, could quickly become available to all members of markets in tradeable goods.
Under this new 3-D supply chain system, each business will have a competitive relationship with like businesses under fair conditions, and not simply by size. In other words, a cooperative relationship will arise between a business and its nearby competitors. This is far different from what we see today. With these competitive-cooperative relationships, each business will be able to significantly increase its efficiency, productivity, and application capabilities—in a word, its overall market effectiveness. 3-D systems will be multiplicative, not merely additive, as with the 2-D supply chain model. This will become a business revolution.
The 3-D supply chain system will arise with the voluntary participation of many SBEs and MBEs and their suppliers and service providers, with clarified responsibility lines, centralized volume, and mutually distributed expense. Because this supply chain system connects the power of all participating members, each will benefit from the system’s size. For example, competing convenience stores could insure themselves against theft, as opposed to paying some average price computed by an uncaring and locally unsophisticated insurance industry. Numerous other applications could easily develop in real markets, based on imagination. Human intelligence will re-emerge among the robots, as at Toyota, and the cascade of full-time jobs into part-time jobs will be reversed. In effect, SBEs and MBEs will retake control of their own destinies.
Further, our proposed 3-D public supply chain system’s impact on SBE and MBE productivity, flexibility, and delivery speed will draw operations of companies that have offshored and outsourced to lower labor cost countries back to the U.S. by lowering barriers to re-entry. Accordingly, numerous new businesses and jobs will manifest in the market as a whole, and we can overcome American capitalism’s regeneration crisis and undertake economic revitalization on a realistic basis.