Bak 2 Skool 09: The Supply Chain

Time for school supplies!

As a person who works in Supply, this will be interesting

HERE WE GO

sadly, I already do know the answers to 'why no chips', but lets do this, I already forgot a lot of the details.

Film and 40s and Finance

The Big Short is an excellent movie for understanding the recession!

I learned Bakalar hasn´t watched the Wire from this video. Shame on you, Jeff. :p

So what I get from this is, if you want a well-paying job, become a dock worker.

Not that I'm an expert, or know for sure, but I believe Sabotka is the last name of the stevedores in The Wire, and not whatever Dan said?

Regarding national production of computer parts, it just doesn't make sense in globalization for a number of reasons. Apple tried to make a Mac Pro a few years ago domestically and it ended up being too complicated (largely because US manufacturing supply chains at all basically doesn't exist): Apple moves Mac Pro production from Texas to China | Ars Technica

Also, China isn't the only country where these parts get made. Southeast Asia in general is becoming a lot more relevant and getting more business for manufacturing. Reasons for this are between purchasing power parity (i.e. how much it costs to live in Southeast Asia versus /anywhere/ in the US), to parts availability (rare Earth metals only available in Africa or Japan) to where the specialists or existing manufacturing exists (like in the case of Taiwan).

All this complexity makes efforts to "nationalize the economy" very ridiculous. A full nationalized manufacturing structure would be impossible (because not all materials can be secured domestically), and drastically more expensive. It would severely impact the bottom line of most Fortune 500 US companies.

all aboard the ryckert express

The thing responsible for "taking the cargo containers and the cargo trucks and what not"

I think a Bak 2 Skool Film & 40s where you guys talk over entertaining but also very informative films would be very cool.

30:50 - No, you can't hold on to a shipping container once you've emptied it, they're property of the container shipping company (there are also companies who lease out containers to other companies, but whatever) and they will want those back. Usually a container has a week or two of "free time" to get the container to where it needs to be and get it unloaded. If you go over that free time the shipping company will start charging demurrage, a usually daily fee, until it's returned to port.

Trains are incredibly important for container shipping to the US. It's a big, wide mass of land with only two coasts, so containers get loaded off the ships and put onto trains in Los Angeles, New York, Charleston, Houston or wherever, and then they're moved on rails to inland rail ramps in cities like Chicago, Minneapolis, Kansas City, Atlanta, Memphis, Denver etc, and at these inland rail ramps they are lifted onto trucks and taken to their final destinations.

Compared to ocean freight, air freight is very expensive (think cargo space vs fuel costs) and there is so much cargo moving around the world that there wouldn't be close to enough capacity. Air freight is really only used for expensive and fragile stuff that needs to be delivered fast. Yes, you can order all kinds of garbage online and it will most likely fly on an airplane at some point, especially if shipped internationally, but the package delivery companies like UPS, FedEx, DHL etc. are specialized in that area. However, once you get to bigger volumes of cargo being shipped between businesses, ocean freight is so much more economical. I cannot stress enough how incredibly expensive a couple cargo containers' worth of cargo would be to ship by air.

And the reason why so much stuff is made in China is basically that China has a lot of the raw materials (or easier access to raw materials) needed to manufacture all kinds of shit and, most importantly, cheap labor.

Dan is in RARE form in this.

"That's alot of sandwiches!"

@tommytoad said:

The thing responsible for "taking the cargo containers and the cargo trucks and what not"

Yeah, I was curious and at first believed it could be another term like stevedore or it could even refer to those crane machines. Even seeing "Sobatka Wire" showing up as autocomplete options I figured it could be referring to a term. But nope.

"Such a specific and ultimately unnecessary question" - summary of the entertaining/infuriating parts of every episode of B2S.

Dan, oh Dan. It is called "shipping"...

Dan not knowing if things are mostly made in china because they are cheaper is an all timer

Please do a supplemental episode on why so many things are made in China.

@katerpilet: Yeah pretty much this. Every country or region has their own comparative advantage to produce certain goods and service. The concept might be too convoluted to be explain in a reply section. But let's just say that we can make more stuff, if we allocate our global resource to produce stuff we are good at making and then just trading with one another.

For example if the U.S. can make 2 wheat and 3 cars if they produce all domestically, and China can make 1 wheat and 4 cars if they produce all domestically. If they trade with one another. The US can allocate more resources to produce 4 wheat and China can produce 8 cars and then trade the excess with one another. Also more stuff = cheaper stuff, so it's better if we trade.

Jeff: There aren't enough people!

Dan: Well...pay them more.

Dan is secretly solving the employment crisis in America in the actual most logical way.

"Are NFTs involved?"

Oh my god, what if they do cryptocurrencies.

At 47:34, Dan asks a REALLY good question and Jeff looks like he doesn't know what to do for a second.

Ohhh.. this gonna be good! Might as well learn about the collapse of the American empire!

I'd like to request a lesson on The Labor Theory of Value.

China could build a harbor in about a year. America would take 20 years. China would take the land. Thank you comrade for benefiting the Chinese people, we'll be getting shit done now. China literally built 13 hospitals in the span of months when Covid hit.

America has to suck every landlords cock that owns any land they need.

@sometimesavowel:

And the answer is: Absolutely.

Our overlords sold the working class up the river. Sent manufacturing overseas for short term profits instead of paying workers. Completely crippling the working class in America.

America produces NOTHING.

The idiots literally sent the means of production to a communist nation. How'd that work out?

lol

Literally references The Wire season 2

Doesn't believe boats are still a thing

Huh, i never really thought about the conundrum where shippingcontainers were mostly sent out of China to the point where they run out of them. Hasn't this been an issue before? I imagine that China has consistantly exported way more than they imported in the last decades. Now i wonder what the global amount of containers is like and whether it's constantly growing because it's more valuable to keep creating them, than to retrieve empty containers just to fill them up and send them overseas again.

I think it's also important to note that a supply chain is not just one link between 'the factory' and the 'consumer'. It are all the links of a chain that work together to satisfy the demand of the end-consumer. Think about potatochips. They source their potatoes from farmers. They require all sorts of specialized machinery, and oil to create and QA the potatochips. They needs chemicals to clean the plant. They need robots to help them store their products. They might need to transport their poducts to a general hub from where these potatochips get sent to a bunch of supermarkets. All these movements between various locations require the various businesses involved to transport their goods around just to eventually get it to the endcustomer.

Computerchip manufacturing is not only not done in the US because it would take too much time to get it going, but also because it's cutting-edge work that relies heavily on the availability of the right resources, the economics of scale and the lower laborcost to make it all affordable. The average consumer is not going to buy an overpriced and inferior product no matter what marketing campaign you run that it's 'all american' and they just need the consumer to be okay with expensive & worse products for a handful of years, so that eventually their chips can compete with the best ones and be more affordable as the scale increases. Instead, the consumer will make the choice that's the best for their current situation.

Finally, While the goal of Just-In-Time management and Agile/ Lean manufacturing is to eliminate waste in the system, it's not like buffers are complete taboos to hold, if there's a good justification for that. Companies need to have a good grasp of the tools and procedures to set their inventories at a certain level that they account for. Every industry is trying to make sure that they're not spending crazy amounts on inventory. Inventories will be set at a certain level that account for predicted fluctuations in supply & demand. if your line of work is mission critical for society, inventories should be set at a higher level that accounts for the greatest of spikes. When things get more uncertain in the world, that job becomes very difficult. And even the most conservative buffers will be depleted when the situation lasts long enough.

I keep thinking about Vinny's bug-out bag and how he personally made the call that his buffer in such a situation is meant to be for 2 weeks. Anything more, and society has probably crumbled. For certain industries to have to halt production for months, that's something no one accounts for because it's straight up 'unprecedented' in the same way that 'society collapsing' is something that Vinny can't ration for.

Introducing the 'bull-whip effect'. If i need 800 tires this month, but think the availability in the future might be rough, i can decide to buy 1400 tires instead just to be 'safe'. One step higher in the chain, the tire-maker now has to deliver 1400 tires to this customer, a massive increase. So they think.. hmm.. times are uncertain, demand is trending upwards, it's probably better if i make sure that i get the rubber needed to produce 2000 tires for this direct customer, so i am on the safe side. The rubber-plant now sees this great upward trend in the demand for rubber and also decides to play it safe and make sure that they have the capacity to provide 3000 tires worth of rubber to their direct customer. Due to the uncertainity, we've gone from a true demand at one customer of 800 tires to producing 3000 tires worth of rubber. Now imagine if there are 100 other purchasers of tires that also want to 'stay on the safe side' and make production spiral out of control further upstream the supplychain.

This is why there's a need for companies within a supply chain to communicate with their key-partners and share information with eachother. All these links in the supply chain are dealing with the same uncertainty and all want to satisfy the end-consumer's demand while making sure that they don't have all their temperature-controlled warehouses filled to the brim with products that are not in demand. If the links in a supply chain share information, integrate and communicate, they can decide that they'll predict a 50% increase in true demand. This means you end up with a more manageable 1200 tires instead of 3000. Such decisions are extremely valuable in 99% of the situations, but naturally, there are no predictions that account for production to halt for several months. In this pandemic, an uncontrolled bull-whip effect might've end up to be a blessing in disguise. But you can't rely on that, because it means you're awful at controlling your wasteful activities as a business and ended up lucky 1% of the time.

This is a classic game that demonstrates the bull-whip effect. 4 players work together in a supply-chain. You are placing orders at another player up 1 link in the chain making sure that you satisfy the demand in your industry while keeping your backlog and inventory at a low.

Spoiler for the game: Turns out that if you listen to the demand at the lowest chain in the supply chain and the partners upstream just copy/paste the same demand to their own suppliers, all companies involved will come out ahead massively compared to the supply chains that all try to be on the 'safe side' for their own particular company. It highlights how a company is not an island. Instead, it's a cog in a larger system of various businesses that all have to work together to achieve the best results. Think about a fashion company having a hard time to dye cloth in an uniform color, sharing this issue with the supplier of the threads, after which they decide to move the dye-process upwards in the production before the threads are woven into a cloth. That only happens if the company doesn't clamp onto the idea that the dyeing-process is theirs to fulfill.

I was just kinda angry when I wrote this, and wanted more blame pointed at people but I know that's not what this is for.

I don't feel good about people using the term "perfect storm" for this situation, because it feels like it's excusing the issue. The idea behind a perfect storm analogy, unless I'm mistaken, is that it's a perfect combination of factors not in our control that make something unassailable. Who could have seen the perfect storm coming?

We fucked up. Capitalism is the reason this happened. Underpaid domestic workers, exported labour, exploited east asian citizens making all the products we use in sub standard conditions. Instead of "perfect storm" it would be better to challenge the status quo and say we fucked up, especially the rich.

Rant over. I don't think most people using the term perfect storm are doing it to intentionally obscure the issue, but it's a turn of phrase we are so used to that it's easy to excuse the issue.

Edit: Of course, labour shortages due to illness are really bad and aren't inherently the fault of people though poor handling of it has made more people sick.

I've wached The Big Short multiple times. Great movie. I still don't really understand a lot of it. I think a big problem with that movie is there are a few scenes where they rush through some really complex and crucial details.

Does Dan not fundamentally understand the basic principle that air travel requires a significant amount of energy? Getting a plane in the air and keeping it up takes a lot of power, especially the more weight you put on it. By contrast, getting a boat to float on top of water takes no energy and then you just gotta push it a little to make it go forward. How can an adult not know that one of these is far more efficient?

Dan should play American Truck Sim to see how many of the jobs you can take are just hauling palettes, plastic waste, etc. to a place that needs it, though not so much just empty trailers. Trailers get reused, but often needs a driver to haul it back when empty and that's called a Deadhead job.

To put it simply, A recession is when the economy shrinks two quarters in a row. Normally the economy is supposed to grow every quarter or there is trouble with higher unemployment, makes it hard to get a loan, etc

I don't know what accent that Wendover Production guy has, but I call it the "Burger King Foot Lettuce" accent. It has the weird upspeak thing that rises in pitch at the end of phrases. I really want to know where these people come from, or if it's just completely put on as a bad imitation of the "newscaster voice".

for about three seconds i gave Dan too much credit and thought he was actually just like "like the dudes who worked for Frank Sobotka in The Wire" and not that he thought Sobotka was the term for a stevedore.

I'm going full insane listening to the bits about chips and silicon. I wish they'd get some experts as guests, Jesse Vincent from keyboardio could explain that whole section very well.

Like I just wanna scream WE DID MAKE CHIPS HERE! Texas Instruments is named that because they made the Instruments in Texas! We had NATIONAL Semiconductor! 90% of it moved overseas because the labor can be cheaper and more dangerous there!

Very entertaining, tho.

I am torn between whether Dan is as supremely unaware as he seems to be, or if he is putting on a character that is the most uninformed a person could be, while still able to hold himself upright.

Either way, it's dumb.

Jeff being scandalized that Dan doesn't know something and then telling Dan something incorrect like it should be the most obvious thing is equal parts fun and maddening. It's the hurting I crave.

The shipping container squeeze has actually lead to a lot more cargo going by air. It's so expensive and slow to ship by sea at the moment that, particularly for high value, compact products shipping by air is reasonably economical. You can fit a lot of expensive fitness waters or PS5s or whatever on an airplane. In my industry we just heard one of our large vendors bought a bunch of 747s and hired pilots just to get around the backlog.

One of those "parking spots" was apparently made in error, causing an oil spill.

@larmer: a big part of the problem with the credit crunch and recession is that people were dealing with complex, opaque derivatives (CDSs) of derivatives (CDOs) of *actual* financial products (mortgages) that are inherently hard to explain. The Big Short does the best job of it for a mainstream audience, but it’s still not necessarily good, just because of how complex they are.

It's hilarious how defensive Jeff is at the start of every episode. There's a LARGE difference between him not being an expert, and him straight up being wrong about most of the things he says in a confident tone that only a white man on the internet could

This Sobotka thing has me rolling

Jeff, I'm so disappointed you thought most trains use electricity. It should be that way, and they were efforts to electrify many tracks in the past. But, in the US at least, most trains run on diesel and we've actually removed electrification in some areas.

Also, I think Dan just does not grasp the scale of how big those boats are and how small even the big planes are.

@jerf You should know that almost all the trains in the US are non-electric, and are powered by something fuels like diesel or coal. Yes, the thing they used in the 1800s is still sometimes used today, though the methods of handling it I think are much better.

Ultimately, we don't have electric rails (outside of one or two outliers, mainly in New England) because in the 50s and 60s, this country decided to basically fuck itself to death with car culture, and most railways (and most other public infrastructure) were demolished in favor of more highways for more cars. We have never recovered from this, and while it would be great it we eventually did electrify our railways, it would require a public investment on a scale that makes it unlikely to ever happen.

It's also worth noting that electric high-speed rail is very common in Europe and Asia because they often have their shit together.

Jeff is so unqualified. I bet he doesn't even have a degree in shipping containers.

@danryckert

Since it's a recurring question in this episode, here's my attempt at a simple summary of why shipping by boat is generally preferred:

1) Boats float. Keeping them afloat doesn't cost any fuel, and moving through water is easy because there isn't much friction. Think of pushing a rubber duck on water versus pushing one on land - which will travel further? Boats are slow to get going, but the cheapest mode of transport once they're in motion (even cheaper than road travel). Planes are fast, but you would need dozens if not hundreds of trips to transport what a large boat can in a single trip, and an awful lot of fuel is spent just on getting planes off the ground and keeping them in the sky, which is expensive.

2) There isn't actually that much benefit to companies in having things arrive there faster. Manufacturers plan ahead - they don't suddenly decide "we should make this now" - so they can book supplies to arrive when they need them. For most goods it really doesn't matter how long it spent in transit, as long as you have a steady supply. When a consumer orders a PS5, they want fast courier delivery because it's just one PS5 and it's no good to them until it's in their hands, but a company will be getting regular deliveries of the supplies they need.

Say for example a manufacturer uses a ton of iron every day. As long as they have sufficient storage capacity, it really doesn't matter if they get a delivery of 7 tons every week, or 30 tons every month, or 365 tons every year. Likewise, if they're getting one delivery a week, it doesn't matter if it was dispatched from the supplier on an express flight the previous evening, or on a boat a month ago. They might even have several boats on the way to them simultaneously - a new one could be dispatched while the previous one is still in transit.

Stay in skool, folks.

A Film & 40s: Bak to Skool edition would be amazing!!