Archive for June, 2011


Understanding the Markets

My June column in Mechanical Engineering magazine:

The morning after U.S. President Barack Obama announced the death of Osama bin Laden, stock markets rose significantly. It was only temporary: Nothing had changed in the world’s economic fundamentals to justify the spike. Rather, it was, as some market strategists call it, a “euphoric bounce”—a simple case of human reaction to an event, reflexively leading to investor confidence. As both investors and non-investors have learned the hard way, financial markets are volatile, with bulls and bears roaming the economic landscape seemingly on their own volition.

Not as capricious as economic markets, but equally vulnerable, are global supply chains which are subject to unforeseen world events that impact the flow of goods. The latest such example is the catastrophe that struck Japan in March, but there have been other natural upheavals and complex-system failures in recent years that also have jeopardized the distribution of raw materials and finished products.

Those along the supply chain—manufacturers and distributors, among others—are vulnerable to ruptures of the chain’s links because these breaks cannot be predicted. Yet there is a need to somehow manage the unknown vulnerabilities, since a failure to manage these risks and prevent disruptions can be disastrous.

We asked James B. Rice, Jr., the deputy director of the MIT Center for Transportation and Logistics and the director of the Integrated Supply Chain Management Program at the Massachusetts Institute of Technology in Cambridge, to give us his perspective. Rice managed manufacturing and distribution operations at Procter & Gamble before joining MIT so his essay, the subject of this month’s cover story, “Only as Strong as the Weakest Link,” is written by one who knows the subject both as a scholar and as a practitioner.

Rice argues that, “Companies need to consider creating action plans in order to manage the risks arising from the inevitable disruptions that significantly affect business operations and supply chains. Failure to do this could leave companies every bit as fragile as the supply chains they rely upon.”

Because the world has never been more integrated, a breakdown in one part of the world will affect another part, thousands of miles away.

A major reason the world has become so connected is the advent of wireless technologies that enable effective supply chains to function uninterrupted and communicate reliably, allowing real-time collaboration.

Even so, there are geographic regions where the supply chain, for various reasons, is not long enough to reach certain people, notably those in developing countries who live on only a couple of dollars a day. For them, the supply chain is limited to adjoining villages or often non-existent.

In these areas, the challenge is to develop locally based appropriate technologies. In the article, “Appropriate to the People,” Rolfe Leary, a volunteer at Compatible Technology International and a lecturer in bioscience engineering, provides an insightful first-person account of what it’s like on the ground.

There is congruence between the seemingly disparate supply chains that exist in so-called developed nations and those being created in developing nations. The challenge is to understand and respect the nuances of each in order to build stability in diverse markets and benefit local consumers.

The Editor

John G. Falcioni is Editor-in-Chief of Mechanical Engineering magazine, the flagship publication of the American Society of Mechanical Engineers.

June 2011

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