Optimized for Fragility

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Correspondent Tom D. summed up my work in one compact line: "The real risk of maximum optimization is profound fragility." I wish I had come up with this brilliant summary, for it captures a wealth of insights into the systems that control our collective destiny. 

I recently rediscovered another brilliant line, this one from correspondent Ray W.: "It is axiomatic that failing systems work the best just before they fail catastrophically." These two ideas speak to the same dynamic, for it is also axiomatic that highly optimized system work extremely well within the confines of their optimization. The upside of this optimization is efficiency and the maximization of profits. The downside is this arrangement is intrinsically fragile, as any deviation in the optimization or envelope collapses the system.

Globalized supply chains offer an example that we're all familiar with: the ease of ordering and receiving goods from around the world masks the fragilities and vulnerabilities created by the relentless optimization to increase efficiencies and profits. These supply chains operate in very narrow envelopes with near-zero buffers of redundancy (i.e. multiple sources of components, distribution, etc.) and near-zero slack in timing and warehousing.

Every point of optimization is a potential point of failure.

A new book teases apart the global supply chains and reveals their inherent proximity to failure. 'We're asking a lot of these people': how fragile is the global supply chain? A new book looks at how the pandemic highlighted issues with the supply chain and how precarious things still are.

In his book, How the World Ran Out of Everything: Inside the Global Supply Chain, New York Times journalist Peter Goodman is out to change that. With the amount of exploitation in the supply chain, the ease of such transactions is not magic – it's more magical thinking.

Here's an excerpt from the Amazon summary: 
"While the scale of the pandemic shock was unprecedented, it underscored the troubling reality that the system was fundamentally at risk of descending into chaos all along. And it still is. Sabotaged by financial interests, loss of transparency in markets, and worsening working conditions for the people tasked with keeping the gears turning, our global supply chain has become perpetually on the brink of collapse.

Award-winning journalist Peter S. Goodman reveals the fascinating innerworkings of our supply chain and the factors that have led to its constant, dangerous vulnerability. 

Goodman weaves a powerful argument for reforming a supply chain to become truly reliable and resilient, demanding a radical redrawing of the bargain between labor and shareholders, and deeper attention paid to how we get the things we need."

Examples of glitches bringing entire production / distribution to a halt are not hard to find: a fire in a factory in Japan that was the sole global source of a specialty industrial solvent shut down production for months.

Such failures are rare, so we've become complacent and blind to the fragilities piling up in the supply chains we now depend on so absolutely. Prior to the globalized, financialized optimization-driven centralization of production and distribution, a county might have been served by a dozen small dairies. Should one close, the slack could be picked up by the remaining producers.  Now that county--and hundreds of other equally dependent counties--gets virtually all its dairy products from massive factory-farm operations hundreds or thousands of miles away. 

This is optimization at work: eliminate redundancies and buffers as needless expenses reducing profits.

This raises the key question: what's being optimized? Global supply chains aren't optimized for resilience; they're optimized for efficiency in service of maximizing profit margins which are thinned by global competition. The difference between a profit and a loss may well boil down to modest reductions in cost wrung out of supply chains.

The vast majority of these optimizations are hidden or only visible to insiders who understand the narrowness of the envelope and the ways the systems / technologies have been optimized to function best within the confines of the envelope.

Consider another common experience, being a passenger on an airliner. If we know little about the system design and economics of the aircraft, we might assume the airliner operates pretty much the same at various altitudes and speeds. But this is not the case: the aircraft and its engines have been optimized for highly efficient fuel consumption in narrow envelopes of altitude and speed: generally speaking, above 30,000 feet and between 500 and 540 miles per hour.

Outside of these envelopes, the efficiency of the fuel consumption falls off significantly.

Optimization has other more subtle vulnerabilities.