Thursday, October 22, 2009

Supply Chain and Demand: Perspectives on the Future Challenges to Global Resource Distribution

Contrary to popular belief, there really is no such thing as a truly "free market" - all goods and prices need to factor in:

- production time

- transportation time

- cost of raw materials

- cost of packaging

- production and transportation times for raw materials and packaging

- the salaries of people involved in making sure every step of the process runs smoothly

- and most importantly, energy costs

Concerns over the future availability of abundant cheap energy have led to conflicting views on how the current supply chain system and global economy will adapt to these constraints. Some see a challenging, but ultimately positive outcome. Others, less so. And some don't think there's anything to worry about to begin with.

However, energy isn't the only problem supply chain analysts should be worried about. Current socio-political trends - terrorism, piracy, insurgency, civil wars, embargoes - can, have, and will continue to inhibit the flow of goods and energy worldwide. Factoring these types of disruptions in will create a more accurate picture of how supply chain operations will evolve, as well as potential solutions to the growing aforementioned problems.

Worse case scenario, the future of product transportation could look something like a less hilarious and more depressing Road Warrior.

2 comments:

Michael said...

Is the idea of a 'free market' somehow not inclusive of those costs? Isn't that the point of the market? Prices on it reflect all of the costs involved in production and getting that product to the consumer? Not that I am a free market ideologue, nor do I think that 'free markets' exist. But to the extent that they don't I think its because of other factors, not these rather mundane costs that have always been a part of pricing.

I tend to defer on these types of things to a good friend of mine who is a recovering economist. http://noompa.wordpress.com/

JP said...

I suppose the idea of a free market tends to refer to trade with as few arbitrary constraints (tariffs, embargoes, other government-imposed restrictions) as possible. However, the point was merely to underline the costs of distribution that get taken for granted by most consumers, and discuss ways those foundations could be threatened in the near future, and thus affect the global marketplace as a whole. I'll be sure not to toss around loaded terms so freely next time around.

JP

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