Is Economic Efficiency Replacing Economic Resilience?

[Opiate32]

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.

The problem is that market usually reward quarterly performance and not preparation for rare events. A manger who cuts inventory today may be praised because profit improved immediately while the benefit of keeping larger reserve is invisible if no disruption happens.
That is why resilience is very difficult to price. You hope you will never need it, so it always seem expensive until the day it will save you.

The real challenge is deciding how much resilience is enough without making businesses less competitive.

[AprilioMP]

[edited out]

This is the reason why governments are not loved all around the world. For example, in my country, the government decided that school supplies should be cut, and I mean from simple stuff, like even toilet paper. Instead, kids' parents should get together and pay a small sum to make that happen.
[edited out]

A country that relies solely on taxes is not a country at all, but rather a bureaucracy that parasitizes its own people. It’s not that there are no such countries in the world—even those with vast natural resources and abundant energy sources are still unable to stand on their own two feet.
Cuts to several key budget items—such as education, as you mentioned—under the pretext of efficiency mark the beginning of the officials’ deviation from their duties. There is nothing left to hope for except to wait for it all to end or to remove them from office before their term is up.

[Bluedrem]

Yes, that's right. Human life is not that easy and what goes on is to go through various obstacles. As you mentioned in the pandemic when many people lost their jobs. Those who were in it or those who wanted to develop their skills in the situation did not fall into a bad economic situation.
If I present my personal story, I have to say that I am still studying but I am trying to become self-reliant during my studies, so along with my studies, I am using my skills to earn extra income. I am now self-reliant compared to others of my age.

[SPIDERMAN008]

Yes, that's right. Human life is not that easy and what goes on is to go through various obstacles. As you mentioned in the pandemic when many people lost their jobs. Those who were in it or those who wanted to develop their skills in the situation did not fall into a bad economic situation.
If I present my personal story, I have to say that I am still studying but I am trying to become self-reliant during my studies, so along with my studies, I am using my skills to earn extra income. I am now self-reliant compared to others of my age.

A person losing a job or trying to earn income while studying is different from keeping business operations safe by reducing expenses or increasing expenses by taking some risks. A person losing a job or trying to create multiple sources of income and acquiring skills for that is basically a matter of personal stability. But in business, increasing the stock of raw materials a little and keeping alternative routes for running other businesses is to create some security from major losses. It is definitely important to take steps to prepare alternative routes for running the business in advance based on the data of the past few years. But excess is bad. Therefore, the alternative measures should be as much as necessary. Many people are afraid of what will happen if any problem arises in the future and may waste more security measures or stock raw materials. Where it can weaken small businessmen and reduce their real productivity.

[lombok]

Yes, that's right. Human life is not that easy and what goes on is to go through various obstacles. As you mentioned in the pandemic when many people lost their jobs. Those who were in it or those who wanted to develop their skills in the situation did not fall into a bad economic situation.
If I present my personal story, I have to say that I am still studying but I am trying to become self-reliant during my studies, so along with my studies, I am using my skills to earn extra income. I am now self-reliant compared to others of my age.

A person losing a job or trying to earn income while studying is different from keeping business operations safe by reducing expenses or increasing expenses by taking some risks. A person losing a job or trying to create multiple sources of income and acquiring skills for that is basically a matter of personal stability. But in business, increasing the stock of raw materials a little and keeping alternative routes for running other businesses is to create some security from major losses. It is definitely important to take steps to prepare alternative routes for running the business in advance based on the data of the past few years. But excess is bad. Therefore, the alternative measures should be as much as necessary. Many people are afraid of what will happen if any problem arises in the future and may waste more security measures or stock raw materials. Where it can weaken small businessmen and reduce their real productivity.

The basic distinction between the survival strategy of individual and the resilience strategy of a business unit will be the efficiency by which the resource allocation is made. The idea of anticipating the risks that are beyond the reasonable limit in fact results in wastage of working capital. It is much more effective in business continuity through the creation of sufficient operational reserves through calculations based on the historical data, rather than being defensive in nature, many times out of fear.

[Opiate32]

What makes you think the businesses that were disrupted didn't have enough resilience? What kind of resilience do you want to have that will not be affected by a global pandemic? What company would go the extra cost and follow pandemic guidelines before 2019, when there was no pandemic? You deal with those kinds of problems as they come. The same with wars and even tariff wars and trade restrictions. You deal with those issues as they come.

I don't think you are a good businessman if you operate your business like there is a war or pandemic, with the mindset that you are trying to be "pandemic proof" or "war proof" in case of a war. Not only will you be losing more money due to higher costs, but if what you were preparing for actually comes, big businesses will only adjust to what you are doing and continue doing business as usual. So what is the point?

My point is not that companies should become pandemic proof or prepare for every scenario, it is that recent disruptions exposed how vulnerable many businesses can became after removing buffer in the name of efficiency.
Even simple measures like supplier  diversification or maintaining a reasonable inventory can make  very huge difference without creating excessive cost.

[Curious T]

My point is not that companies should become pandemic proof or prepare for every scenario, it is that recent disruptions exposed how vulnerable many businesses can became after removing buffer in the name of efficiency.
Even simple measures like supplier  diversification or maintaining a reasonable inventory can make  very huge difference without creating excessive cost.

Yes, I get the point; I'm only trying to show that you can't avoid certain things. There will always be vulnerability in business. That is what people who run the business are there for. It is their job to make sure they get through a certain phase or obstacle when they face it. Running a business is practical; it's not theory. We can stay here and paint scenarios and models, but at the end of the day, we can't see the future. We can only speculate. The business needs to be profitable, so they will do what they can to be profitable. The supply diversification and reasonable inventory you speak of still has its own risks and may not apply to all businesses.

[hafiztalha]

Where do you think the right balance is?

In all these past years it is noted that the economy becomes less efficient when efficiency is maximized at all cost when there is crisis. During normal times single source supplier and just in time production can reduce the cost, but they also leave business with very little room to respond when there is a serious issue like for pandemic, disaster, war or trade restriction that disrupt their supply chain. The companies should try to build resilience where it matters for certain critical production industry maintaining their strategic inventories or having multiple suppliers, or producing goods that are closer to home can also increase cost slightly, but it prevent them from greater losses during any sort of disruption.

Any supply chain that can survive crisis is more valuable than one that is optimised for normal condition.

[MRY]

Where do you think the right balance is?

In all these past years it is noted that the economy becomes less efficient when efficiency is maximized at all cost when there is crisis. During normal times single source supplier and just in time production can reduce the cost, but they also leave business with very little room to respond when there is a serious issue like for pandemic, disaster, war or trade restriction that disrupt their supply chain. The companies should try to build resilience where it matters for certain critical production industry maintaining their strategic inventories or having multiple suppliers, or producing goods that are closer to home can also increase cost slightly, but it prevent them from greater losses during any sort of disruption.

Any supply chain that can survive crisis is more valuable than one that is optimised for normal condition.

The focus on complete efficiency with no risk reduction usually disembowels business system in the face of worldwide crise. Rotating the suppliers of procurements and holding conventional stocks certainly adds routine costs over time. Nevertheless, these operational resiliency investments have shown to be useful in cushioning entities against an even larger financial devastation when crisis hits out of the blue.

[Berry2d]

Yes, that's right. Human life is not that easy and what goes on is to go through various obstacles. As you mentioned in the pandemic when many people lost their jobs. Those who were in it or those who wanted to develop their skills in the situation did not fall into a bad economic situation.
If I present my personal story, I have to say that I am still studying but I am trying to become self-reliant during my studies, so along with my studies, I am using my skills to earn extra income. I am now self-reliant compared to others of my age.

Self employment is the only answer to the imbalance economic situation we experience in today's society.  Many had the opportunity to empower themselves with great skills as you are doing now but refused because they had all hopes nailed down to the provision of job the government have promised without knowing difficult times like this may come to stay.
To start with i will say your decision to improve your life with the acquisition of skills different from the academic qualifications you are pushing for is a added advantage to you because at a time where many will he faced with scarcity of jobs you won't experience such all because of the skill you have at your disposal now.