Is Economic Efficiency Replacing Economic Resilience?

[Opiate32]

Over the last few years, we have seen how things change. A pandemic, trade restriction or even shipping delay can disrupt businesses looked perfectly efficient on paper. For years companies focus on cutting cost, keeping very little inventory and relying on suppliers from all over the world. It worked well until something unexpected happend.

Now I’m starting to wonder if businesses have focused too much on efficiency and not enough resilience. Would it make more sense to accept slightly higher cost in exchange of stronger supply chain and fewer disruption or would that only make goods more expensive for everyone?

Where do you think the right balance is?

[viljy]

Economic efficiency (in the sense of profitability) is the opposite of the resilience of production to external shocks. For example, the Japanese just-in-time production system, which requires minimal or no inventory, requires perfect logistics. But in conditions of military conflicts that affect the whole world (including indirectly), logistics cannot be ideal. Therefore, problems are inevitable.

In general, an increase in the efficiency of a production system often implies the abandonment of the safety margin of this system. This is the so-called "optimization". For example, the abandonment of redundant (alternative logistics) and shock-absorbing (warehouses) components of the system always reduces the stability of the production system. It is possible to "optimize" the system until it is completely destroyed. By the way, there's even a saying here - cheapest is the dearest.

[Maine22K]

I think the last few years have shown that maximizing efficiency isn’t always the same as building a resilient business. Lean inventories and global supply chains can reduce costs during stable periods, but they also make companies more vulnerable to unexpected disruptions, whether from pandemics, geopolitical tensions, or natural disasters. That said, resilience isn’t free. Holding more inventory or diversifying suppliers usually increases operating costs, which can eventually be reflected in higher prices for consumers. In my view, the right balance depends on how critical the product or industry is. For essential goods, accepting some additional cost to improve supply chain resilience may be worthwhile, while for less critical products, companies may prioritize efficiency.

[Mhizlove]

Actually, for now, I don't think that businesses can survive on low cost alone. We all know that the world has changed, or the world is changing, so a little global issue can disrupt supply chains that companies have spent years building. Okay, for instance, now if companies depend only on one supply system, with a little disruption, it can affect production and also the customers. You see, most times, having a backup plan during a supply disruption will not go to waste when spending a little. What I'm trying to say is that the right balance is to save costs without going as far as weakening the ability to take care of unexpected issues.

[Taricoins]

I think the last few years have shown that maximizing efficiency isn’t always the same as building a resilient business. Lean inventories and global supply chains can reduce costs during stable periods, but they also make companies more vulnerable to unexpected disruptions, whether from pandemics, geopolitical tensions, or natural disasters. That said, resilience isn’t free. Holding more inventory or diversifying suppliers usually increases operating costs, which can eventually be reflected in higher prices for consumers. In my view, the right balance depends on how critical the product or industry is. For essential goods, accepting some additional cost to improve supply chain resilience may be worthwhile, while for less critical products, companies may prioritize efficiency.

Facts, from what I have gathered from what you said, I tally into the idea that Economic efficiency doesn't really leave out resilience. That's why every training or workshop on Economic development often times emphasizes on sustainability.

For an economy to be efficient all round, there must be factors put into consideration for survivability during times of crisis and the only deficient in direct focus on the efficiency is the reduce in storage capabilities. So for an economy to be fully efficient, proactive factors like it's resilience during emergency will always be considered. Just my line of thought.

[Stepstowealth]

Now I’m starting to wonder if businesses have focused too much on efficiency and not enough resilience.

The resilience of a business depends on the resilience of the leader of the business, This can be a reason why businesses no longer need to focus on resilience but now focus on efficiency because a leader alone cannot be efficient for a business, but with his resilience mentality a business may be able to navigate a difficult or tough time to ensure its survival. Is resilience something that can be taught and learned? Because if it is something that can be taught or an attribute that can be gotten that means even individuals who do not have a resilient spirits to pilot a business can obtain that from the right source either from a professional or another business mentor that they look up to.

[adultcrypto]

I think the last few years have shown that maximizing efficiency isn’t always the same as building a resilient business. Lean inventories and global supply chains can reduce costs during stable periods, but they also make companies more vulnerable to unexpected disruptions, whether from pandemics, geopolitical tensions, or natural disasters.

You are very correct because the OP seems to be confusing two different concepts. Efficiency is more pronounced when all is going well with the business and services are delivered on schedule,  it has little to do with the resilience of the business because resilience is mostly measured during adverse conditions such as in the advent of pandemic, war or economic crisis that affect all sectors. Resilience measures the ability of the business to withstand these adverse conditions that are bound to happen in the life cycle of a business. It is often neglected during feasibility studies but it is important because failure to plan for it can lead to business collapse.  [/list]

[YOSHIE]

Where do you think the right balance is?

As far as I know and in my understanding, economic efficiency and economic resilience of a country require both. In general, both are different, but both complement each other, but one country that only focuses on efficiency alone will not survive, where one country actually pursues efficiency while the resilience system collapses, that is called the risk of not complementing each other.

Where a country must be able to minimize the duration, economic resilience and be able to carry out its core functions where there is a threat and when the impact of a crisis will occur in that region or country, Likewise, the action of speed or ability in using resources is resilience that must be efficient, right? By having both efficiency and resilience, the country will certainly emerge from the global crisis.

[Obim34]

Where do you think the right balance is?

Countries relying more on imports than manufacturing are definitely not going to be economic resilient, they will be affected by world problems, pandemics and if the country in specific is going through economic crisis. For example, If China should be facing economic slowdown, lot's of countries will be affected, the prices of goods will scale up, until tension is relaxed in China.

Countries do not need to see if they are capable of being economic resilient, independent countries producing and consuming themselves has solved almost the biggest problems they will face economically.

Countries who want to be economic efficient should focus on being less dependent, don't be like countries selling their raw produce and buying back refined produce for higher price, I can tell you for free how it feels, sudden changes.

[letteredhub]

Actually, for now, I don't think that businesses can survive on low cost alone. We all know that the world has changed, or the world is changing, so a little global issue can disrupt supply chains that companies have spent years building. Okay, for instance, now if companies depend only on one supply system, with a little disruption, it can affect production and also the customers. You see, most times, having a backup plan during a supply disruption will not go to waste when spending a little. What I'm trying to say is that the right balance is to save costs without going as far as weakening the ability to take care of unexpected issues.

The ideology of the world by the advancement of technology making the world a global village has really cost many economies more harm than good which indirectly is affecting the operation and lifeline of businesses, those that can't cope with being efficient are shutting down because for them to be resilient they first have to be able to be effective in the market. You can imagine how many businesses around the world had to be affected by the Iranian blockade of the Strait of Hormuz. Similar it was when the Russia and Ukraine conflict started in around 2022, the supplies of grains were affected negatively and this affected global prices of grains.

[Creeper0]

Where do you think the right balance is?

No matter how strong the supply system is, there can be disruptions in the supply system during a pandemic or global instability. We have seen the volatility of crude oil prices in the global market due to the closure of the Strait of Hormuz. Its impact has even been seen on other commodities, it is said that the entire economy of some countries was in instability. The global economy also became unstable during the Covid pandemic.

If your country can be economically efficient and less import dependent, then it may be possible to maintain internal stability during this pandemic and global instability. Since we have to depend on other countries or import dependent in some way, a strong supply system may not be enough, nature will create disruptions in this strong supply system. Moreover, if a strong supply system is ensured, I think it may be reasonable to increase the cost of goods slightly.

[Fortify]

Over the last few years, we have seen how things change. A pandemic, trade restriction or even shipping delay can disrupt businesses looked perfectly efficient on paper. For years companies focus on cutting cost, keeping very little inventory and relying on suppliers from all over the world. It worked well until something unexpected happend.

Now I’m starting to wonder if businesses have focused too much on efficiency and not enough resilience. Would it make more sense to accept slightly higher cost in exchange of stronger supply chain and fewer disruption or would that only make goods more expensive for everyone?

Where do you think the right balance is?

This.. has been happening since the start of limited trading companies and is not something new. They say each recession is triggered by something that has never been seen before, otherwise people would factor it in to their risk calculations which would possibly stop the problem. There was the dot com bubble, the financial crisis and many more events like that before the last 5 years but I guess that would require doing more than superficial "research". No business is safe really, disasters of all kinds can topple even the market leaders. For a long time Nokia was the king of the mobile phones, until Palm and then Apple made a better product that has held the crown for decades since. Not every leader is going to identify the latest trend or be able to dominate the best product, the best they can hope for is to adapt in time.

[Spaceman1000$]

Where do you think the right balance is?

Countries relying more on imports than manufacturing are definitely not going to be economic resilient, they will be affected by world problems, pandemics and if the country in specific is going through economic crisis. For example, If China should be facing economic slowdown, lot's of countries will be affected, the prices of goods will scale up, until tension is relaxed in China.

Countries do not need to see if they are capable of being economic resilient, independent countries producing and consuming themselves has solved almost the biggest problems they will face economically.

Countries who want to be economic efficient should focus on being less dependent, don't be like countries selling their raw produce and buying back refined produce for higher price, I can tell you for free how it feels, sudden changes.

I completely agree with you, this just simply economics, if your producing what you consume as a country, every other thing will simply just fall in line, inflation can easily be controlled because imported goods that usually comes with irregular pricing will definitely reduce. The example of China you gave was a brilliant one, take for instance in Nigeria where we rely heavily on imported goods especially from China, if there is a major meltdown in their production, Nigeria will be among the top casualties as they are heavily dependent. One of most common reason a country should be economical efficient, is the fact that, whoever your relying on for production, will always have a say in your economy from thousands of miles away, which shouldn't be.

[slapper]

Efficiency and resilience are not evenly spread out in an economy. If a corporation is efficient, the profits are reaped by the shareholders and executives. However, in the event of system failure, gravity would do the rest, and debris would flow downward. It pools in the supply chains, the small suppliers, the local economies wired into a global machine.

So it is not something new. Well, it turns out that redundancy was useful. Turns out local capacity matters. Turns out you actually need slack in a system for it to absorb shocks. Then we build it up again, we forget, the money-cutters come back in, and we do it again! The short term optimization gets a bonus! The long-term resilience is line-item reviewed.

Resilience involves embracing waste in regular times. That is it. You need to have inventory available there. Suppliers that are not used to their full capacity Investors pressure any CEO who has “unnecessary” reserves to either use them or give them back. The system actively punishes preparedness.

So would slightly higher costs be worth it? Obviously. However, the question is political. Who wants to sacrifice today so that someone else does not suffer tomorrow? It is a collective action problem, and markets are not that great at solving collective action problems. Always have been.