The Complexity of the Supply Chain: We need a new approach to assess supply chain resilience.

• Author: Mandel, Michael

"Supply chain disruption" is suddenly a widely searched term on the internet. As store shelves are inexplicably bare, automobile production is slowed by a lack of semiconductor chips, and inflation accelerates, both consumers and economists are looking for answers. But answers are hard to come by. Conventional trade and economic statistics tell us very little about the dynamics of global supply chains which have become so important to the global economy. We may have to do a lot more digging before we understand how to buttress our resilience to future disruptions.

The classic picture of international trade taught in economics textbooks is based on "arms length" transactions. A wine merchant based in Washington, D.C., for example, will contract to buy one hundred bottles of Bordeaux from a French distributor. Or an Ohio-based manufacturer will browse an online catalog and buy ten thousand screws of a particular size from a Guangdong factory. But for the most part, international trade is not as simple as opening up a paper or online catalog and ordering a pre-made product, at a fixed price. Most large retailers and manufacturers can't just buy generic goods off the world marketplace and expect to have the quantities and products that they want. For "simple" goods like apparel and toys, a retailer like Walmart will have in-depth real-time knowledge of what styles, colors, and materials customers are buying, and work with suppliers around the world so that they can plan ahead. In other words, market data flows from domestic buyers to overseas suppliers even before production.

The cross-border flow of data is even more important for more complicated items like cars and smart phones. The manufacturers of these goods design the product, organize the suppliers to make the thousands of tightly interdependent parts, and have them assembled and tested, either overseas or at home. The flow of goods from suppliers is matched with a corresponding flow of data from the lead manufacturer.

The same applies to semiconductors. According to the Biden administration's hundred-day supply chain review, released June 2021, the typical semiconductor production process includes multiple countries and may require the semiconductor to cross international borders up to seventy times before reaching its final destination. Such a complicated supply chain requires intense coordination and planning.

For regulated products like pharmaceuticals, the factories that produce...