A New Inter-Supply-Chain-Net as a Solution for the Current Economic Crisis

(Reposted from the Huffington Post, November 24, 2014)

By Ho-Hyung ("Luke") Lee

Many high government officials and top economic experts have tried to solve our continuing worldwide economic recessions and revitalize the economies over the last several years, but to no avail. Resembling the myth of Sisyphus, every attempt to improve economic performance has resulted in that huge boulder tumbling back to the bottom of the hill.

In the Modern Information Age, two major changes for jobs have come to pass in the supply side of the market: (1) Increased IT efficiency in robotics, various software applications, and electronic transaction systems and (2) Increased off-shoring and outsourcing to lower labor cost countries. These changes have killed a lot of jobs in the domestic market, and our economic experts have already recognized this. However, very strangely, they have not seriously considered the increasingly unfair conditions for competition between big companies and small- and medium-sized companies in the market (or supply chain) process.

Most small- and medium-sized companies are still using a conventional supply chain process with 3 or 4 separate transactions and no streamlined supply chain networks. On the other hand, many big companies such as Wal-Mart and Forever 21 have streamlined supply chain networks--normally consisting of only one or two transactions--between their own or partnered suppliers and their retail stores. In this situation, small- and medium-sized companies have inevitably lost their businesses and their workers their jobs. Actually, jobs have been killed on a large scale in almost all industries.

More seriously, it seems that a vicious cycle for jobs has already formed between the supply side and the existing market (or supply chain) process.

As a result, those negative employment conditions eventually led to the worsening of the self-generation and recovery capability of the market, and this has operated as a force to lower the level of consumer spending over time. This has been a persistent source of recurring recession.

In this situation, it seems that our governments had no other choice but to adopt various excessive expansionary economic policies and stimulative economic plans to avoid economic malaise. That is, they expected to use them as a force to keep the level of consumer spending high. But, unfortunately, they were effective only temporarily and even produced various abnormalities as side effects in the market. These contained a huge risk to the level of consumer spending and of forcing the economy into sudden recession. This raises the question of how long we can keep adopting excessively expansionary economic policies and enacting stimulus plans to stave off recession. Japan, being an island economy, may prove to be the laboratory animal here.

Even if many economic experts are still trying to find a solution on the policy side alone, I think no sustainable solution is there any longer, because the self-generation and recovery capability of the market is still worsening.

A good doctor does not simply prescribe medicine for a disease. He or she first must understand that the medication is only a stimulus to support the self-generation and recovery process. If s/he finds the body has a weak self-generation and recovery capability, the doctor tries to restore that capability first and then adjust the medication according to the condition of the patient, because s/he knows that a medicine could also be a poison. Likewise, I believe our market economy has also its own self-generation and recovery capability. If it is seriously damaged, the treatment consisting only of stimulus policies and plans could actually be harmful to the economy, contrary to their intended purpose. It seems that we have already adopted too many economic stimulus plans without properly weighing the condition of the self-generation and recovery capability of the economy over the last several years. In my view, there will be no sustainable solution through policy alone until the self-generation and recovery capability of our market is restored to a certain degree.

When the Internet was popularized in 1996, many people, especially young talented people, immediately recognized the collective power of the Internet and started creating new businesses and jobs, mostly in the IT and Internet sectors of the market. That was the Internet Revolution. Then, why haven't we developed an Internet-like system also in the real goods markets? Can we develop such a system? I believe we can.

I have determined there is no public platform (or infrastructure) for the whole supply chain process in our markets - not one in the whole world. We have developed numerous e-commerce platforms over the last 20 years, almost all of them for communication alone, not for the entire supply chain process. Communication is only one function in the whole supply chain process. If this is true, it points to a solution of the real problem.

We can easily develop a public platform (or infrastructure) for the whole supply chain process. It's like the Internet, but instead of a collective platform for information, it's a collective platform for the whole supply chain process in real goods. Because it is constructed as a partnership by collecting the power of all participating members, everyone can benefit from the size of the supply chain infrastructure in the form of collective power. It is a new Inter-Supply-Chain-Net.

If this new Inter-Supply-Chain-Net is developed and implemented in the market, many small- and medium-sized companies and even individuals will immediately realize that they could easily construct numerous retail networks in the market without spending a lot of money and durably compete with companies the size of Wal-Mart and Forever 21 - and make a lot of money if they provide the best quality and price.

The Inter-Supply-Chain-Net will have the potential to induce a Supply Chain Revolution in real markets, similar to the Internet Revolution in information. This will create thousands of new businesses and millions of jobs in almost all sectors of the market. Then, the self-generation and recovery capability of the market will increase growth and prosperity.

In this scenario, a policy for a smoothly functioning economic environment would be established, and no more excessively expansionary economic policies would be needed. Thereafter, the budget deficit at both the local and federal levels would fall, and many economic abnormalities could be resolved naturally.

Surely this will be regarded as the solution for the current economic crisis.

What is the main structural cause of economic inequality?

(Reposted from the Huffington Post, December 10, 2013)

By Ho-Hyung ("Luke") Lee

 

Recently, in an Apostolic Exhortation, Pope Francis urged global leaders to fight poverty and growing inequality in his first major work saying, "As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation and by attacking the structural causes of inequality, no solution will be found for the world's problems or, for that matter, to any problems."

Yes, we should solve the problems of poverty and growing inequality, but how? Is there any clear and better alternative to replace the existing free market or economic system? What is the real structural cause of inequality? Unfortunately, no clear answer has been developed or discovered on these until now.

Can we solve the problems simply with tougher economic regulation and democratic supervision of the capitalist system, with political change or even with more charity or goodwill toward the poor as Pope Francis suggests?  I think that’s not enough and, even if it is possible, it will take too much time in the existing divisive political and social situation.

What should we do then? What could the real structural cause of inequality be?

Here I would like to suggest you and our global leaders ponder the changed economic environment for jobs in the Modern Information Age.

I believe two major changes for jobs have occurred:

(1) Increased IT efficiency in robotics, various software applications, and electronic transaction systems usually leads to replacing rather than creating jobs in production lines or supply chains.  I think this is already a well-known change for jobs and many scholars are very concerned about the further advancement of technology, especially in robotics.

(2) Increasingly unfair conditions for competition between big companies and small- and medium-sized enterprises (SMBEs) in the changed modern supply chain processes have killed jobs in the market on a massive scale, along with raising barriers to market entry for new business creation.  This must result in a big change for jobs, but very strangely, nobody has recognized it and considered it in his or her ruminations about the economy until now.

More seriously, it seems that a vicious cycle for jobs between (1) increased IT efficiency and (2) increasingly unfair conditions for competition is already firmly established in the economy.  This situation is analogous to an ant death spiral.  That is, an economic death spiral has already formed in our economy.  If this is true, no sustainable solution will be found with the existing economic plans and policies until that economic death spiral is broken.

How can we break down the current economic death spiral?  Let’s see first how the supply chain processes have changed in the Modern Information Age.

Many information-based, streamlined, supply chain processes have been developed by remarkably reducing the number of transactions and functions in a supply chain process and significantly increasing the efficiency of each function through the use of information technology in all industries over the last 30 – 40 years of the Modern Information Age.  Almost all IT-based supply chains were privately developed and owned by big companies (such as Zara and Walmart) and used only for their own benefit.

On the other hand, most SMBEs and individuals are still using the conventional ways of separate supply chain functions exemplified by wholesalers and distributors.

Mainly due to the much faster speed and higher efficiency of the new streamlined supply chains than conventional separated supply chain functions, a new unfair competitive condition has been created between big companies and SMBEs.

Let’s see some examples:  Zara, the largest clothing company in the world, developed a private, information-based, streamlined, supply chain process and now needs just two weeks to develop a new product and get it to its stores, compared with a six-month industry average for other small- and medium-sized companies.  Walmart, the largest retailer in the world, also did it and could keep its "Low prices, always" advertising slogan, differentiating it from other small- and medium-sized retailers.

So what’s wrong with this? Something is seriously wrong.

If it is assumed that there is a supply chain river to cross between suppliers and customers, this situation is just as if there were no public bridges in the real world.  No publicly available information-based supply chain process (or infrastructure)!  Strangely enough, not even a single one has been developed in the whole world.  If this is true, it is the main structural cause of the current jobs crisis and thereby economic inequality.  That is, the loss of appropriate infrastructure in the modern supply chain process has caused extensive unemployment.

If an appropriate and efficient public information-based supply chain infrastructure is developed and implemented in the supply chain process of the economy, I believe the current economic death spiral will easily be broken down by providing a fair condition for competition to all and removing the blocks to new business creation.  Thereafter, many of the problems of the poor and also the current economic crisis will also be easily solved.

I hope our global leaders recognize this as soon as possible and take every possible action to solve the problems of the current economic inequality and save our economy, before it is too late.

How a "3-D" supply chain process system could revolutionize business

By Ho-Hyung Lee | 
Reposted from the CSCMP's Supply Chain Quarterly Quarter 2 2013 issue

The emergence of three-dimensional supply chain processes could alter the business landscape, helping small and medium-size businesses to become more competitive.

Since point-to-point (one-dimensional, or 1-D) supply chains were developed, long before the Industrial Age, every business has had a clear responsibility to construct and improve its own supply chain processes in order to secure more customers. Some suppliers or supply function providers have developed two-dimensional, or 2-D (one-to-multiple- or multiple-to-one-based) function systems like Wal-Mart's supply chains or e-seller (one-to-multiple-based) and e-buyer (multiple-to-one-based) communications. A few have developed three-dimensional, or 3-D (multiple-to-multiple-based) function systems, such as the Los Angeles Fashion Wholesale District and eBay's e-marketplace.

Almost all supply chain networks constructed with those 1-D, 2-D, or 3-D function systems have responded to the existing comparative competition paradigm for more market share. In other words, they compete based on size.

 Usually, a 2-D supply chain process is constructed with multiple 1-D lines, chains, or networks, such as the example shown in Figure 1. The two-dimensionally networked supply chain remains the dominant one in the overall market. It's a model that has not changed, even under the modern Information Revolution.

Further, a 3-D process can be constructed with multiple 2-D processes. This can be achieved by providing a platform or infrastructure with some networked basic functions available to all participating members of the supply chain.

The advent of advanced information technology forced suppliers and supply function providers (including many logistics and supply chain management companies) in almost all industries to construct their own electronic supply chain networks at great cost. They did so by integrating necessary functions, thereby significantly reducing the number of functions in the supply chain network and increasing the efficiency of surviving functions through coordination. Because of the superior market position of big suppliers or supply function providers with private supply chain networks and efficient (fast) delivery, the businesses of small- and medium-size suppliers or supply function providers that couldn't afford such networks have unavoidably weakened, and over time many have been destroyed. Accordingly, whole supply chain networks for those small- and medium-size suppliers or supply function providers in real markets became unstable. In this situation, the paramount issue for them came to this: Increase efficiency, or die.

This is a maddening impasse for those small- and medium-size suppliers and supply function providers. As in the myth of Sisyphus, every attempt to restore the status quo has resulted in that huge boulder tumbling back to the bottom of the hill. I believe that if they do not find a way to break down the existing logic of the supply chain rules of the game—the real source of their problems—every new effort for increasing efficiency will be just as useless as everything else they have tried.

In this case, they need a supply chain paradigm shift. Nothing else will do.

Let me first give a little history before I suggest a solution for this impasse.

The Internet brings new capabilities

The increased efficiency and application capabilities resulting from the Digital Revolution have made possible the development and spread of a multitude of digital devices. This has created many new businesses and jobs in the manufacturing and technology sectors and has also made possible the development and expansion of information technology (IT) and computer networking technology.

By the time we entered the Modern Information Age, communication (or information) processes had already been transferred from linearly constructed (1-D), one-to-one-based communication systems, such as telephone and telegraph, to two-dimensional, one-to-multiple- or multiple-to-one-based systems, such as radio or television. With the development of IT and computer networking technology, these two-dimensionally constructed communication (or information) processes could finally advance into three-dimensionally integrated communication (or information) systems such as the Internet.

What does the Internet do? It serves as an efficient and publicly available infrastructure or platform for the whole information process. Before the Internet was introduced in 1996, it was only possible to develop individual, "private" software programs to improve a function's or a business's efficiency and to more effectively carry out its responsibilities. However, because the Internet functions as an efficient, public 3-D information process system connecting multiple information sources and recipients, it became possible to introduce huge increases in effectiveness (or application capability) in information. As a result, numerous new businesses and jobs have been created, but only in the IT and Internet sectors of the market.

The development of IT and networking technology has given us the communication (or information) capability required to develop efficient, public, three-dimensionally integrated process systems, not only for information but potentially also for real (or physical) markets and societies. However, disappointingly, we haven't yet developed any such process systems in real markets anywhere in the world. Why not?

A serious mistake

There are two main ways to develop a process system between multiple providers (or information sources) and multiple customers (or information recipients) by using IT and computer networking technology. One indirect way is to develop transaction systems for functions by manipulating—that is, classifying or limiting—the constituent factors of the transactions, such as products, services, providers, and customers, and then networking those systems for efficiency, thereby constructing a 2-D process to gain more market share (that is, customers). The other way is by directly constructing an efficient, public 3-D process system with an appropriate infrastructure or platform.

There are only four basic requirements for constructing an efficient, public 3-D process system with platform between multiple providers (or information sources) and multiple customers (or information recipients):

1.      The rules and standards for transactions must be simplified and transparent.

2.    Fair (neutral) conditions must permeate competition.

3.    The line of responsibility for every participating member must be clear from the start.

4.    It should be applicable everywhere.

Because information consists of digital codes, its transactions have not only been freed from the restrictions of time and space but have done so in accordance with fair (neutral) rules and standards. Therefore, by developing both the protocol for clarified lines of responsibility and the World Wide Web for ubiquitous applicability, the Internet developed as an efficient, public 3-D process system with infrastructure or platform with few hitches—but only in information markets.

By contrast, the distribution and delivery of real (physical) products and services are directly restricted by time and space. Many different and complex rules and standards evolved in many incompatible IT systems for real transactions or distributions between single providers and multiple customers (Internet sales), or between single customers and multiple providers (private supply chains).

What must be done in order to simplify those many different and complex rules and standards and impose fair conditions for competition? IT and networking technology must directly overcome the restrictions of time and space to improve the conditions of real-world processes.

Unfortunately, nobody has tried this, and therefore there is no efficient, public 3-D process system with infrastructure or platform for real markets.

What has developed are electronic transaction systems for real transactions, including various collaborative e-function systems such as eBay, Amazon.com, and numerous e-logistics and e-supply chain solutions through the use of IT and networking technology. In developing those electronic transaction systems, we have tried to simplify the rules and standards or to construct an obvious rule and standard by manipulating the constituent factors of the transactions, instead of by directly overcoming the restrictions of time and space.

Consider some examples in Figure 2. E-Bay's auction system is an effort to simplify the rules and standards by a product or a service, and Amazon.com's e-seller system is an effort to simplify them by a company (that is, a seller). However, they both made the mistake of giving up the opportunity to facilitate competition with a fair rule and standard among providers. The developers of eBay's or Amazon.com's e-marketplace system or home shopping system have tried to simplify the system and construct a limited fair rule and standard based on the character of products or services. In this case, only products such as dry goods or services lacking time sensitivity, which are not sensitive to the rules and standards, can be effectively traded through these systems.

Some big companies have tried to simplify rules by using their buying power to manage purchasing alone (the e-buyer model), in effect creating monopolies without fair rules of trade. Most collaborative e-function systems have also been developed only through simplifying them by services associated with individual functions. There are many other cases, but almost all of them have this characteristic aim: an immediate increase in productivity and efficiency.

Oddly, whole processes of real-world markets have not been considered at all in developing those information technology-based physical transaction systems, and therefore constructing a fair rule and standard for all has escaped attention. It is clear that information technology has been used erroneously in developing such real transaction systems and networking them from the beginning, and markets have blindly followed this up to the present. As a result of this oversight, it has not been possible to develop any efficient, public 3-D process systems in real markets with IT and networking technology.

This was a serious oversight or mistake, and I believe that it is the real cause of the current economic crisis. Let us consider why I believe that is true.

A hidden, critical flaw

Only private, real supply chain networks could have developed to simultaneously improve both efficiency and effectiveness of each individual party's responsibility by using information technology. This has been done mostly by big companies, and only for their own benefit and to gain a larger market share. (See Figure 3.)

Because supply chain networks have been constructed by networking (or integrating) function transaction systems that were developed by manipulating the constituent factors of their transactions, (1) the number of transactions and functions in the network has shrunk remarkably—as with Wal-Mart, e-buyer, e-seller, and e-auctioneer systems, and existing e-marketplace systems in the real market process; and (2) numerous collaborative activities to increase the efficiency of functions have arisen in nearly all industries.

In this situation, the businesses of small- and medium-size companies (SMEs) have unavoidably weakened and over time been destroyed, and many jobs in SMEs have disappeared. Moreover, because market entry costs rose too much, new business creation has declined.

In fact, all electronic, real supply chain networks that have ever been developed in the Modern Information Age and by constructing 2-D market processes have acted as "job killers" or as blocks to new business creation. 

This is the hidden, critical flaw in our economy—the unintended consequence of runaway IT exploitation in a system lacking a fair rule for competition.

More seriously, these 2-D, real market processes have caused an alteration in the economic environment by seriously weakening employment conditions throughout the supply side. Correspondingly, the market's self-generation capability has dried up, severely and continuously, over time. All streams flow toward "efficiency."

In this situation, can small- and medium-size suppliers and supply function providers overcome this maddening impasse simply by increasing efficiency? No, because it will be almost impossible from a structural standpoint.

A public, 3-D real process system

Have we ever constructed any 3-D (multiple-to-multiple-based) real function systems? Yes, but only in limited real markets or supply chains. Examples include the Los Angeles Fashion District, where competing sellers located within one area of the city band together to market and promote themselves as a wholesale marketplace, and retail farmers' markets, where competing growers share a location or facility where they can sell their produce to shoppers.

How about 3-D real (or physical) process systems? There really is only one: Toyota's production process system, shown in Figure 4.

Toyota's production process system is a true 3-D real process system, even if its communication totally depends on human intelligence. Toyota workers are provided with a production line as a platform or infrastructure, with the same basic machines and a fair rule and standard (or condition) for competition. Each worker is allowed to integrate all machines in the production line. In this situation, individual workers have a clear responsibility for the productivity and application capability they produce, and they also have a competitive relationship with other workers. Therefore, all workers will try to increase the productivity and application capability for each machine as well as the productivity capability of the whole production line in order to increase their own productivity and application capabilities.

In a 2-D situation, a competitive and cooperative relationship has been instituted between a worker and machines, and for a 3-D situation, that same type of relationship has been instituted among workers. In other words, this is three-dimensionally integrated production process system. Thanks to the construction of these competitive-cooperative relationships, Toyota increased efficiency, productivity, and application capability far beyond those of other manufacturers. That increase was multiplicative rather than additive, as with mass production based on the older Taylor 2-D production process, also show in Figure 4.

Here an important question could be raised: Can the principles of Toyota's production process system be applied to the supply chain process? I believe it is quite possible.

In the supply chain process, even if suppliers and customers are able to conduct direct transactions with the support of information systems, the delivery time and cost for real products typically are key issues for customers. To reduce the delivery time, a supplier's product is preferably delivered to a location close to the customer, and its delivery to the final delivery point is performed in the fastest way possible. To reduce delivery costs, the delivery method for a product between its production point and its final delivery point is preferably performed in the most efficient way possible, and its final delivery point is preferably located as near as possible to the customer. (See Figure 5.)

To realize these conditions, as well as to simplify the rules and standards and create fair conditions for competition, the market would be divided into multiple limited market ranges. These would be for directly overcoming the restriction of time and space, not for manipulating the constituent factors of transactions. Because all participating members in this system must communicate only through a third-party IT provider (centralizing volume through centralized communication), an information-based, publicly available supply chain infrastructure with some basic supply functions, similar to digital codes in information, could be automatically established in every limited market range with voluntary participation by outsourced service providers of business functions. This could be available instantly, all over the world and in all markets. In addition, suppliers or service providers could directly manage (that is, integrate) the overall supply chain through this third-party IT brain, or cloud computing.

The delivery starting point for a product would be the first function in the limited market range with the customer, and the final delivery point would be the last function. Deliveries in the limited market range are preferably performed by the most efficient means available, and the cost will be shared by affiliated suppliers according to their volume base. The centralized communication and volume would also facilitate the voluntary participation of outsourced supply chain service providers, and the expense could be more distributed than is usually the case.

Finally, then, there will be greater efficiency, and a fair condition for competition will be constructed for all suppliers and supply function service providers. That is, all four basic requirements will be satisfied for constructing an efficient, public 3-D real (physical) process system with infrastructure or platform between multiple providers and multiple customers.

In this situation, a supplier has a clear responsibility for the productivity and application capability it produces in the supply chain, and it has a competitive relationship with other suppliers. Therefore, it will try to increase not just the productivity and application capability for each function in the supply chain but also the productivity capability of the whole supply chain in order to increase its own productivity and application capability. In other words, a competitive and cooperative relationship will have been instituted between a supplier and supply functions, and among suppliers.

From the construction of these competitive-cooperative relationships, each supplier would be able to achieve much higher efficiency, productivity, and application capability than before. In short, this would create an efficient, public, three-dimensionally integrated (3-D) supply chain process system for the whole real market process.

On the basis of this public 3-D supply chain process system, it will also be possible to create numerous effectiveness-oriented applications in the real market by using various outsourcing service providers. Accordingly, we will then be able to create not just a few but numerous new businesses and jobs in the real economy by lowering the cost of entry.

Time for a "Supply Chain Revolution"

I believe a new efficient, public, 3-D supply chain process system that would overcome restrictions of time and space in commerce by improving real-world business processes in transaction systems could easily be developed with largely off-the-shelf information technology. A networked, public, real supply chain infrastructure bundled with a third-party infrastructure for communication and peripheral supply chain networks could soon be available to all members of markets in tradable goods.

When this new, 3-D supply chain process system operates in the real world, a business user will have responsibility for its productivity and applications in the supply chain process. Each will also have a competitive relationship with like businesses under fair conditions, and will not compete simply on the basis of size. Therefore, a business that participates in such a process system will try to increase the productivity and application capability of its own, in-house efforts, of each outsourcing supply function, and indeed of its whole supply chain in order to increase profit while holding the line on prices. In other words, a competitive and cooperative relationship will arise between a business and outsourcing supply functions, and among like businesses.

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 capability—in a phrase, its overall market effectiveness. Three-dimensional process systems will be multiplicative, not merely additive, as with the 2-D supply chain process model. They will lead a sort of supply chain revolution, which in essence is the "structural change" that economists so often tout.

This new, 3-D supply chain process system will arise with the voluntary participation of many suppliers and outsourcing supply function service providers, with clarified responsibility lines, centralized volume, and mutually distributed costs. That is, because this supply chain process system is constructed as a partnership by connecting the power of all participating members, each member will benefit from the size of the supply chain process system itself in collective bargaining power and adaptive behavior.

Moreover, because each member can easily develop its own additional applications by using this 3-D supply chain process platform with outsourcing supply function service providers or initiate peripheral services essential to business survival, it will be able to increase its competitiveness by expanding its effectiveness in the marketplace. In effect, small and medium-size enterprises, including many logistics and supply chain management companies, could retake control of their destinies.

The 3-D supply chain process system has the potential to induce a Supply Chain Revolution in real markets, just as the Internet did in information. That is, numerous applications could easily develop in the real market, limited only by users' imagination.

As we call the existing 3-D information process system the Internet, I believe we could also call this 3-D supply chain process system the "Inter-Supply-Chain-Net."

Supply chain executives should support and try to participate in developing and implementing this new 3-D supply chain process system as soon as possible. If we do not replace the existing, efficiency-obsessed 2-D supply chain processes with this new, effectiveness-oriented 3-D supply chain process, it will be almost impossible to change the maddening logic of the supply chain rules of the game and, accordingly, to stop the collapse of small- and medium-size suppliers and supply function providers, including many logistics and supply chain management companies.

Moreover, we are all looking for a clear way out of our protracted economic crisis, and more specifically the current consumer slump. With that in mind, I strongly suggest that national governments initiate and support the development and implementation of this public, 3-D supply chain process system (the Inter-Supply-Chain-Net), and induce a Supply Chain Revolution in the market as soon as possible.

Ho-Hyung "Luke" Lee is the founder and CEO of UBIMS (Ubiquitous Market System) Inc.

 “Copyright 2013 by CSCMP’s Supply Chain Quarterly (www.SupplyChainQuarterly.com), a division of Supply Chain Media LLC . Reposted with permission.”

The Real Cause of the Current Economic Crisis and a New Inter-Supply-Chain-Net as a Solution

(repost from the Huffington Post, May 30, 2013)

The U.S. and nearly every other developed nation face continued, severe economic problems.  Despite being years into ‘recovery’, few solutions actually work.  Why?

The Real Question

Almost everyone in the G-20 nations is using the Internet.  What does the Internet do?  It serves as an efficient public infrastructure or platform for the whole information process.

Before the Internet was introduced in 1996, we could only develop individual private software for something to improve efficiency and also create effectiveness at the same time.  However, afterwards, on the basis of that efficient public Internet, we could create numerous effectiveness-oriented applications.  Accordingly, we created numerous new businesses and jobs, but only in the Internet and IT sectors of the economy.

Then, why haven’t we also developed such an efficient public infrastructure or platform for the real market (or supply chain) process?  Not even a single one in the whole world?

A Serious Mistake Made in Developing Real Market Process Systems and the Real Cause of the Current Economic Crisis

There are two main ways to develop a process system between multiple providers (or information sources) and multiple customers (or information recipients) by using information technology.  One indirect way is to develop transaction systems first for functions by manipulating —that is, classifying or limiting—the constituent factors of the transactions such as products, services, providers, and customers, and then networking those systems as an integral process for efficiency.  The other way is directly constructing a public process infrastructure or platform.

Only four basic requirements exist for constructing an efficient public process platform between multiple providers (or information sources) and multiple customers (or information recipients):

1.      The rules and standards for transactions are simplified and transparent.

2.      Fair conditions permeate competition.

3.      The responsibility line for every participating member is clear from the start.

4.      It should be applicable everywhere.

Because information consists of digital codes, its transactions have not only been freed from the restriction of time and space but have done so in accordance with a fair rule and standard. Therefore, by developing the protocol for clarified responsibility lines and the World Wide Web for ubiquitous applicability, the Internet as an efficient public process infrastructure or platform developed in information with few hitches—but only in information markets.

On the other hand, the distribution and delivery of real (physical) products and services are directly restricted by time and space.  So, many different and complex rules and standards evolved in many incompatible IT systems for real transactions (or distributions) between single providers and multiple customers (internet sales), or between single customers and multiple providers (private supply chains).  

To simplify those many different and complex rules and standards and impose fair conditions for competition, what must be done?  Information technology must directly overcome the restriction of time and space to directly improve the conditions of real-world processes.

Unfortunately, nobody has tried this, and as a result no efficient public process infrastructure or platform for real markets has developed.

This was a serious oversight or mistake, and I believe it must be the real cause of the current economic crisis.  Let’s see why!

A Hidden Critical Flaw in Our Economy and the Changed Economic Environment

Only private real market (or supply chain) process systems have developed for both improving efficiency and creating effectiveness at the same time under each individual’s responsibility by using information technology, mostly by big companies and only for their own benefit.

Because supply chains have been constructed by networking (or integrating) their function transaction systems and developed by manipulating the constituent factors of their transactions, (1) the number of transactions and functions in the process has shrunk remarkably—as with Wal-Mart, e-buyer, e-seller, and e-auctioneer systems, and existing e-marketplace systems in the real market process—and (2) numerous collaborative activities to increase efficiency of function have arisen in nearly all industries of the economy.

In this situation, the businesses of small- and medium-size companies (SME) have unavoidably weakened and over time been destroyed, and many jobs in SME have disappeared.  Moreover, because entry costs to markets rose too much, new business creation has fallen.

Actually, all electronic real market process systems ever developed in the Modern Information Age have served as ‘Job-Killing Systems’ or as ‘New-Business-Creation Blocking Systems’.  This is the hidden critical flaw in our economy, the infamous ‘Unintended Consequence’ of runaway IT exploitation in a system lacking a fair rule for competition.

                       

More seriously, these real market process systems as tributaries of the market have caused an  alteration in the economic environment by seriously weakening employment conditions all over the supply side.  Correspondingly, the self-generation capability of the market has dried up, seriously and continuously, over time.  All streams flow toward ‘efficiency’.

In this situation, can we solve the current economic crisis only with powerful expansionary economic policies and stimulus plans?  No, it will be almost impossible, structurally, and a strong case can be made that further gross, untargeted stimulus can only worsen market conditions in real goods and services.  We already know such huge stimulus has not created jobs or businesses.

A New Inter-Supply-Chain-Net as a Solution

The Inter-Supply-Chain-Net is a game-changing efficient public platform for the whole real market process which directly overcomes the restrictions of time and space through information technology.

To simplify the rules and standards and create fair conditions for competition, the market will be divided into multiple limited market ranges for directly overcoming the restriction of time and space, not for manipulating the constituent factors of transactions.  Such a system would replace the feeble supply chains of SME by consolidating them (at modest cost) within limited market ranges.

Some basic supply functions, similar to digital codes in information, will be automatically established in each limited market range with voluntary participation of outsourcing service providers for business functions through a third party IT brain – centralized volume through centralized communication.

Then, finally, all four basic requirements will be satisfied for constructing an efficient public real (physical) process infrastructure or platform (the Inter-Supply-Chain-Net) between multiple providers and multiple customers.

On the basis of this efficient public Inter-Supply-Chain-Net, we will also be able to create numerous effectiveness-oriented applications in the real market by using various outsourcing service providers.  Accordingly, we will then be able to create not just a few but numerous new businesses and jobs in the real economy by lowering cost of entry.  In sum, the Inter-Supply-Chain-Net has the potential to induce a Supply Chain Revolution in real markets, similar to the Internet Revolution in information.

I believe this is the most effective solution for the current economic crisis.

By Ho-Hyung ("Luke") Lee

The Hidden Flaw in Our Economy: Why Didn’t Our Economic Policies Work?

(repost from the Huffington Post, March 8, 2013)

by Luke Ho-Hyung Lee

Revitalizing the economy is now the most important national issue facing not only the United States, but all the G-20 nations, including Japan, Korea and many Euro zone countries.  Even though each country has tried almost every possible policy and investment to revitalize their respective economies, most of them have not been effective.     

Why have the existing policies not been effective?  Why did this situation happen in the first place?  Even though many experts are studying this issue, none have found clear answers, let alone a solution.  Could they be looking in the wrong place?  Or have they missed something crucial in their thinking about the economy?

By way of explanation, I would suggest considering the economic impact of newly developed virtual supply-chain systems in the last three decades of the Modern Information Age.

Conventional systems in the supply chain

Let’s think of the manufacturing and supply chain network – from product manufacturer to distributor to retailer and finally to the consumer.  There were the narrow and curved countryside roads to drive, the mountains to pass, and the rivers to cross between suppliers and customers.  As usual, to increase the delivery speed and efficiency, we have tried to construct highways for the countryside roads, tunnels for the mountains, and bridges for the rivers between them.

In this case, however, let’s imagine that the highways, tunnels, and bridges were all privately developed and owned (mostly, by big companies).  Moreover, the owners weren’t interested in opening these transportation facilities to the public – not even to collect tolls.  They simply wanted the highway-tunnel-bridge system for their own, private use because of its competitive advantage.

What would have happened next in our economy and society?

The most likely development would have been that, due to the superior position of big companies in efficiency, the businesses of small- and medium-size companies would have weakened and eventually been destroyed, and accordingly many jobs in these companies would also have disappeared.  Job creation in the market as a whole would have suffered as demand fell.  In addition, while the profitability of the general service industry fell precipitously, we would have experienced a vicious deflationary cycle with rapid reduction of total consumption.  Correspondingly, the expanding gap between poor and rich would have become inevitable.… Our society could have experienced increasing social and political unrest.… 

In this scenario, what actions would national governments have taken?  First of all, they would have adopted a series of powerful expansionary monetary and fiscal policies and stimulus plans aimed at preventing truly vicious deflation due to reduced total consumption, and activated deregulation to revive the overall market.  Moreover, in order to calm social unrest, the implementation of generous welfare policies would have been unavoidable.  As a result, many national fiscal statuses would have continued to worsen after a lag, pushing weaker national economies toward default.

This looks uncannily like the situation that the world economy including the US has experienced over the last several years.

Fortunately, however, rationally run countries actually have never allowed this hypothetical case to happen.  That is, they have developed many open transportation infrastructural facilities for the public.

But, unfortunately, such rational development has not been the mark of the Modern Information Age.

Newly developed virtual supply chain systems in the Modern Information Age

A business could also improve the efficiency and speed of delivery by using advanced networking, or virtual, systems.  No matter how great the distance nor how complex the connection, whoever is responsible for a function is always clear in a virtual system.  As a result, outsourcing became possible for numerous functions in a supply chain.

We have developed virtual logistics systems and other collaborative functions in the supply chain through the use of IT and advanced networking systems.  Moreover, many companies (mostly big companies) have developed virtual supply chain networks by vertically and horizontally integrating logistics and similar collaborative functions.  The aim was to reduce the number of transactions and functions in supply chains and to improve the efficiency of collaborative functions.

Zara’s case is an example.  Zara, the largest clothing company in the world, developed an information-based supply chain network by vertically and horizontally integrating its logistics and collaborative functions through the use of IT and networking technology and now needs just two weeks to develop a new product and get it to stores, compared with a six-month industry average .  This enables Zara to launch around 10,000 new designs each year, far outdistancing its competition.

But what happened to others in the industry?  Most of Zara’s collaborators--small designers, manufacturers, and stores--became much less competitive than Zara, which absorbed only a few of them.  As we have come to expect, the employment situation for middle- and lower-income workers in this industry relentlessly worsened.  Zara’s IT imitators are now legion all over the market.

A serious flaw in our economy

Without being aware of the larger economic implications, our rationally run countries have accepted privately owned information-based supply chain networks as an economic necessity without calculating the consequences of such a decision.  As a matter of course, most of these networks have been developed by large companies and are used only for their own benefit.  Moreover, even if it is hard to believe, no similar public infrastructure has emerged at all--not a single one in the whole world. This is just as if all physical transportation facilities were privately owned and used only for the owner’s profit!

I believe this has become the hidden driver of the current economic crisis.  It increases the barrier price of entry for new businesses, and it perpetrates bloated costs of doing business in distorted markets.  It also accounts for distortions in demand and in labor.

What should we do for our distorted economy?

We must first repair this flaw by constructing a new public information-based supply chain infrastructure for modern IT-based markets in tradeable goods and services. 

Unfair conditions for small- and medium-size companies and accordingly also for middle- and lower-income workers now permeate the markets that make up the economy as a whole.  Economic policies not taking modern supply chains into account will continue to fail, and will produce no full economic recovery, because enormous amounts of capital are required to feed the oligopolies that emerged from the electronic revolution in private supply chains.

I believe it possible to ensure fair conditions in the market and restore a rationally-run economy along the lines of absolute competition.  This alternative to our current distorted markets will be relatively painless to implement, and over time will eliminate the fruitless economic policies of the past by making them unnecessary.