Efficiency is best way for supply chains to be resilient

The food supply chain, from across the globe to the consumer’s plate, had proven itself remarkably resilient.
 | Getty Images

The world’s food supply chain is an outstanding example of resilience.

The world’s consumer goods supply chain is anything but.

(Those of you who follow me know I despise the overuse of the term “resilient,” but it fits here.)

While hunger-fearful people across the developed world anxiously stocked their pantries, freezers and garages with food, toilet paper, flour and other staple products, the world’s food supply chains reacted with alacrity to the multiple shocks, challenges and complications of COVID-19.

Within a couple months, consumers across the developed world saw that food and staple goods supplies weren’t likely to run out and they relaxed.

The food supply chain, from across the globe to the consumer’s plate, had proven itself remarkably resilient.

The consumer goods situation has proven to be a much different story. Automobiles, videogame consoles, toy, lumber and other regular products have suddenly become scarce. Some basic commodities, such as lumber, have become scarce, causing a surge in prices and fights for limited supply.

More sophisticated goods like semiconductors have also become scarce, shutting down production of many things requiring them, including automobiles.

And supply chain wrinkles, like the phenomenon of container shippers ignoring lower-end products in favour of the highest-end products, have led to the present shortage of bicycles vexing housebound citizens.

(See the story here for more on this.)

The consumer goods supply chains seem to lack necessary resilience. The food supply chain seems to have it.

Why is the food supply chain so high-functioning?

Part of it is due to governments ensuring that food was prioritized among all the sectors facing pandemic problems. “The food must flow,” seems to have been the approach taken by governments around the world.

As I’ve written about before, when people talk of building more resilience into supply chains, they often mean that more excess capacity should be built.

That includes building extra production, processing, shipping and marketing capacity, going beyond that needed in normal circumstances. I’ve criticized that idea because nobody will actually be willing to pay for spare capacity. If excess capacity requirements are imposed, the costs will always fall back on the farmer.

But happily, it seems like there was great resiliency in the global food industry regardless, and from a perhaps surprising source: its super-high efficiency.

The system operates on just-in-time functioning, and while this may cause short-term seizures in times of crisis, its efficiency might also be why it is able to get back to normal-ish quickly.

“The structure of the agri-food sector has evolved to provide food in the form desired by end users at the least cost, but the focus on efficiency has left the system with little reserve capacity,” observe agricultural economists Alfons Weersink, Michael von Massow, Brendan McDougall and Nicholas Bannon of the University of Guelph in an article I wrote about on page 34 of this issue.

“Thus the shift in the form and nature of food demanded, compounded by the temporary closure of processing facilities caused short-term disruptions as highlighted by events such as the dumping of milk. But the specialization and efficiency focus of the food supply chains associated with the initial disruptions may have also been responsible for its rapid rebound.”

That, to me, is the critical point. The resilience of the food production and supply chain might be due to its efficiency focus, not on any excess capacity being borne by it.

If that’s the case, we should continue to focus on maximizing the efficiency of the system rather than gearing it up to face some future pandemic, tsunami, war or meteorite impact. Predicting what kind of blow we’re likely to suffer before it hits is probably a fool’s errand, and it shouldn’t be allowed to muck with our — now proven — excellent food production and delivery system.

If we’re going to overhaul it post-pandemic, let’s do it by maximizing efficiency and capability, because that appears to be what got us through this crisis, at least so far.

Instead of excess capacity, let’s focus on building excess efficiency.

About the author

Markets at a glance

explore

Stories from our other publications