Jul 31, 2023·edited Jul 31, 2023Liked by Gad Allon

Great read!

A couple of thoughts come to mind:

1. While the pandemic provoked some thought leadership and emphasis around building more resilient supply chains, it appears many companies have reverted back to JIT delivery mechanisms - often with minor contingency plans, but largely exposed to many of the same risks.

Part of me wonders if companies are looking at this from a competition-based perspective. I.e. "If competitors are exposed to the same risks we are, it's okay. Our competitive downside is hedged by the inaction of our competitors, so we are safe to proceed as normal." This mentality seems almost anti-capitalistic in a way - not taking advantage of the ability to become more efficient than a competitor. At the same time - it's very understandable. Most companies see their supply chains as a cost center rather than a competency to develop an edge.

2. Semiconductors and battery materials are mentioned briefly at the end as a potential high-risk commodity that may be at risk from fragmentation. We are heavily dependent on a select few number of countries for many critical rare-earth materials and technologies, namely China, which comes with a lot of geopolitical risk.

China has also used their control of critical-element supply chains as a form of soft power in the past:

“In 2010, China restricted export quotas of rare earths to Japan following a territorial dispute between the countries, sending prices of rare earths soaring and Japan scrambling to find other sources of supply. Beijing said at the time the curbs were based on environmental concerns.”

— Reuters [https://www.reuters.com/markets/commodities/where-are-strategic-materials-germanium-gallium-produced-2023-07-04/]

and is initiating export constrains on germanium and gallium starting in August of 2023.

The part that personally concerns me is that we lack the visibility to see how far this fragmentation exists. In September of 2022, we found out part of our supply chain for the F-35 included an alloy whose production was subcontracted out to China, without the DoD knowing. The DoD halted production and scrambled for months before being able to continue the program. [https://www.heritage.org/defense/commentary/chinese-f-35-part-shows-the-pentagon-needs-fix-its-supply-chain-visibility]

Finding the right balance between cost, resilience, and agility can prove to be difficult. It's a fascinating set of variables to balance. Thanks for the post, Gad :)

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Thanks for the great response. I love the f-35 story! Completely agree with everything you wrote.

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